SDLT – Rate of tax?
A company was buying a development site with planning permission to construct eight houses for just over £2 million. The site was being sold by a single vendor and was made up of one existing house and its garden plus three abutting back gardens. The existing house and garden accounted for less than £2 million of the total consideration. What was the applicable SDLT rate?
The 7% charge applies to the acquisition of an interest in a single dwelling where the chargeable consideration is more than £2 million. Paragraph 7 of new Schedule 4A FA 2003 defines ‘dwelling’:
- a building or part of a building counts as a dwelling if it is used or suitable for use as a single dwelling, or it is in the process of being constructed or adapted for such use
- land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land) is taken to be part of that dwelling
- land that subsists, or is to subsist, for the benefit of a dwelling is part of the dwelling
The tests are applied at the effective date of the transaction which is normally completion.
As the three back gardens were not occupied or enjoyed with the existing dwelling at completion the value of them could be ignored. On this basis the existing house and garden fell outside the 7% rate.
The transactions were linked and so would be taxed at the rate applicable to the total consideration. In order to determine the appropriate rate it was necessary to decide whether the relevant land was residential, commercial or mixed.
The test of residential land is not identical to the test of what is a dwelling. Anything that is not residential is commercial (section 116(3) FA 2003). Mixed property is taxable at the 4% maximum rate for commercial property as there is no provision for apportionment (section 55(1) FA 2003). In this case, the property was mixed and the 4% rate applied.
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At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.