HMRC SDLT: SDLTM09525 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons FA03/S55/SCH4A: when is a property ‘suitable for use as a dwelling’?

Principles and Concepts of SDLT Chargeability

This section of the HMRC internal manual explains the circumstances under which Stamp Duty Land Tax (SDLT) is chargeable at a higher rate for residential property acquisitions by certain non-natural persons. It focuses on the criteria determining when a property is considered ‘suitable for use as a dwelling’ under FA03/S55/SCH4A.

• Higher rate SDLT applies to non-natural persons acquiring residential property.
• Definition of ‘suitable for use as a dwelling’ is crucial.
• Guidance provided under FA03/S55/SCH4A.
• Relevant for tax compliance and planning.

Understanding Stamp Duty Land Tax (SDLT) and Higher Rates for Non-Natural Persons

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax (SDLT) is a tax that you pay when you buy property or land over a certain price in England and Northern Ireland. The amount of SDLT you pay depends on the price of the property and the type of buyer. This tax can vary depending on a range of factors.

When is SDLT Charged?

• Generally, SDLT is charged on the purchase price when you buy a property or land.
• There are specific rules that determine when SDLT applies, especially for different types of buyers.

Higher Rates of SDLT for Certain Non-Natural Persons

There are higher rates of SDLT that apply if the buyer is a non-natural person. This term typically includes companies and partnerships. If a non-natural person acquires residential property, higher rates of SDLT may apply. Here’s what you need to know:

• Non-Natural Persons: These are entities like companies, investment funds, or trusts, not individuals.
• Residential Property: This refers to properties that are primarily used for living, such as houses and flats.
• Higher Rates: Non-natural persons usually face a 3% increase in the normal SDLT rate when acquiring residential properties.

Exceptions to the Higher Rates

There are some situations where the higher rates do not apply. For instance:

• If a non-natural person is purchasing a property that’s under £40,000, SDLT does not apply.
• Properties that are not residential or have no sleeping accommodations may also be excluded from these higher rates.

Defining a Property ‘Suitable for Use as a Dwelling’

Determining whether a property is ‘suitable for use as a dwelling’ is essential for SDLT purposes. This definition can affect whether the higher rates apply. According to HMRC guidance SDLTM09525, a property must meet certain criteria to be considered suitable for dwelling use. Here are the main points:

• Living Accommodations: The property must have features that allow it to be used as a home. This means it should accommodate sleeping, cooking, and washing.
• Physical Features: A property should include a bedroom or similar space for sleeping, a kitchen area, and bathroom facilities.
• Intended Use: Even if a property has the potential to be a dwelling, if it is currently being used differently (like a commercial space), it may not meet the necessary criteria.

How to Determine Suitable Use

To decide if a property is suitable for use as a dwelling, consider the following:

• Examine the physical characteristics of the property. Does it have rooms designed for living? Are there necessary facilities like bathrooms and kitchens?
• Look at any restrictions or conditions on the use of the property. For example, a property might be listed for commercial use only.
• Consider the buyer’s plans for the property. If they intend to convert a property primarily used for commercial purposes into residential living space, further assessment may be required.

Examples of Suitable Properties

Here are some practical examples to illustrate what might be considered suitable for use as a dwelling under SDLT rules:

• A converted flat with two bedrooms, a living room, a kitchen, and a bathroom is easily suitable for living. The characteristics meet all necessary criteria.
• A property currently functioning as an office with no facilities for cooking or sleeping may not qualify, as it does not currently have the characteristics typical of a dwelling.
• A house that has been turned into a holiday rental with all appropriate amenities would count as suitable, provided it’s used for living purposes.

Property Tax Considerations

If the property classifies as suitable, the SDLT calculation will apply the higher rate if purchased by a non-natural person. Here’s what you need to know regarding the tax:

• Tax Bands: SDLT rates operate on a band system, where different portions of the property price are taxed at different rates.
• 3% Additional Charge: Non-natural persons will pay the prevailing SDLT rate plus an additional 3% on the total consideration.
• Calculated Based on Total Purchase Price: The higher rates impact the entire purchase price rather than just a portion of it.

Special Cases

Some unique properties may require additional considerations:

• Purchases involving multiple properties may trigger different SDLT considerations, especially when they include both residential and commercial properties.
• Properties purchased through partnerships or similar associations are also reviewed under non-natural persons to determine if the higher SDLT rate applies.
• It’s important to seek further clarification or guidance if there are any uncertainties about a specific situation.

Additional Guidance

If you need more detailed information about when SDLT may apply, including specifics about non-natural buyers and suitable properties, refer to the HMRC guidance documents. You can find additional instructions and definitions in the links provided, including SDLTM00360 to SDLTM00400 for detailed discussions on the use and definitions related to properties.

When to Seek Professional Help

If unsure about the suitability of a property, or how SDLT applies in a specific case, it may be useful to consult with tax professionals or legal advisors who specialise in property transactions. They can provide insights into the complexities of SDLT, especially concerning higher rates and non-natural persons.

Conclusion

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09525 – Scope: when is Stamp Duty Land Tax (SDLT) chargeable: higher rate charge for acquisitions of residential property by certain non-natural persons FA03/S55/SCH4A: when is a property ‘suitable for use as a dwelling’?

View all HMRC SDLT Guidance Pages Here