Excerpt from; Stamp Duty Land Tax Guide For Property Investors.

Non Residential & Mixed-Use SDLT

(SDLT Classifications, Reliefs and Exemptions)

Comment: This section outlines the classification of properties for Stamp Duty Land Tax (SDLT) purposes, detailing how different types of properties are assessed and taxed.

Key Points:

  • Property classification determines SDLT rates.
  • Categories include residential, non-residential, and mixed-use.
  • Variations in classification depend on regulatory requirements.
  • SDLT rates differ based on property type and condition.

Main Principles:

  1. Classification: Defines a property’s primary use, impacting SDLT rates.
  2. Variations: Different criteria used by authorities for property classification.
  3. Application: Local tax and SDLT classifications affect tax liabilities.

Reliefs and Exemptions: Specific provisions reduce tax based on property type.

Classification of Property

Classification concerns defining the primary use and characteristics of a property. This categorisation is important as it determines the base SDLT rates applicable to a transaction. For instance:

  • Residential properties typically include dwellings where people live or intend to live.
  • Non-residential properties encompass commercial buildings, agricultural lands, and other properties not designed for residential use.
  • Mixed-use properties contain elements of both residential and non-residential uses, such as a building with retail shops on the ground floor and apartments above. We explore mixed-use property in greater detail in the section titled: Purchasing Mixed-Use Property.

Variations in Property Classification

The classification of a property can vary significantly based on the entity responsible for the assessment and their specific regulatory requirements. Different organisations use distinct criteria that can result in different classifications for the same property.

Example. Local Authorities

    • Purpose: Primarily for assessing council tax and business rates.
    • Criteria: Focuses on the usage of the property, distinguishing between residential and non-residential purposes.
  • Application
    • Council Tax: Properties classified as residential are those that are occupied or available for occupation, influencing council tax liabilities.
    • Business Rates: Non-residential properties, such as commercial or industrial buildings, are assessed for business rates based on their use rather than their occupancy status.

HMRC Classification for Stamp Duty Purposes

  • Purpose: To determine the applicable Stamp Duty Land Tax (SDLT).
  • Criteria: Classifies properties as residential, non-residential, or mixed-use.
  • Example: A building with a shop on the ground floor and apartments above is typically considered mixed-use and therefore subject to non-residential rates of stamp duty. However, if a property is entirely commercial it would be classified as non-residential for SDLT purposes.

Dilapidated Properties

  • Condition: A property can only be considered uninhabitable and therefore unsuitable for use as a dwelling if it is not repairable. This means that if a property is merely in disrepair but can reasonably be repaired, it does not qualify as uninhabitable under current case law.
  • Local Tax: A property intended for residential use upon renovation may still be classified as residential even if it is currently uninhabitable.
  • SDLT: For SDLT purposes, a property is classified as non-residential only if it is deemed unsuitable for use as a dwelling and cannot be repaired to make it suitable.

Exemptions and Reliefs

  • Definition: Provisions within tax law that reduce or eliminate tax liability based on the property’s classification and price.
  • Impact: These do not change the property’s classification but affect the tax amount due post-classification.
  • Example: First-Time Buyers’ Relief: May reduce or eliminate SDLT for eligible residential property purchases

Stamp Duty Land Tax (SDLT) Rates and Example Calculation: 

Here’s how SDLT calculations would differ based on the classification of a property purchased for £500,000:

  1. Residential Property (Not owning another residential property):
    • Total SDLT = 0 + (5% of £250,000) = £12,500
  2. Residential Property (Owning another residential property):
    • Total SDLT = (3% of £250,000) + (8% of £250,000) = £27,500
  3. Non-Residential or Mixed-Use Property:
    • Total SDLT = 0 + (2% of £100,000) + (5% of £250,000) = £14,500

Conclusion

Non-residential properties, which include a diverse array of land and building types such as commercial properties, forests, agricultural land, and other non-dwelling lands, are subject to lower SDLT rates than residential properties. This favourable tax treatment is designed to encourage investments in sectors that are critical to economic development, such as industry, agriculture, and commerce.

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