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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
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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: businesses of trading in or redeveloping properties FA03/SCH4A/PARA5

Where the acquisition of a chargeable interest is exclusively for the purpose of development or re-development and resale in the course of a property development trade, the 15 per cent higher rate charge will not apply to the transaction. Instead, SDLT will be charged at the standard rates.

However, a further return and payment of additional SDLT will be required if the relevant rules in Withdrawal of relief (SDLTM09660) below apply.

A property development trade is defined as one that consists of or includes buying, and developing or redeveloping for resale, land and property.

This definition will cover a range of activities, from the refurbishment of substantially the whole of a property (including, for example fitting new bathrooms, kitchens, and so on) prior to resale through extensive works on the property including extensions, and so on, to the demolition of the property and replacement with one or more new residential units or a commercial property. It will also include the sale of land interests out of the land acquired, for example, smaller parcels of land or the granting of leases.

Examples

  1. A company purchases a chargeable interest in a dwelling in the course of a bona fide property development business with the intention of redecorating and reselling the property. The interest costs £2.5 million. The higher rate charge does not apply and SDLT is payable at the standard rates.
  2. A company purchases a chargeable interest in a dwelling with the intention of refurbishing and reselling the property. The interest costs £2.5 million. The company is unable to find a buyer following the renovation and makes the commercial decision to find a tenant for the short term prior to testing the market again in the future. The higher rate charge does not apply and SDLT is payable at standard rates. The facts at the effective date of the transaction are key to establishing whether or not the higher rate charge applies.
  3. A company purchases a chargeable interest in a dwelling with the intention of refurbishing and reselling the property. The interest costs £2.5million. Shortly after the purchase and before the company commences any redevelopment work it receives an offer from a purchaser willing to pay a price that will give the company a good profit from the transaction. The higher rate does not apply and SDLT is payable at the standard rates, as the facts indicate that the company’s intention was to carry out redevelopment work prior to resale as part of a property development business.
  4. A company purchases a chargeable interest in a dwelling with the intention of demolishing the property and redeveloping the site as a commercial property (or part of the commercial property will be on the land formerly occupied by the residential dwelling). The interest costs £2.5 million. The higher rate of 15 per cent does not apply and SDLT is payable at the standard rates, as the property has been purchased for the sole purpose of developing and reselling the land. The ‘redevelopment’ does not need to be of residential property.
  5. A company purchases a chargeable interest in a dwelling with the intention of knocking it down and building three new properties on the land for resale. The dwelling costs £2.5 million. The higher rate does not apply and SDLT is payable at the standard rates, because the activity to be undertaken meets the condition that the subject matter of the transaction has been acquired for development and resale, albeit of different buildings and in smaller units (paragraph 5(2) and (5) of Schedule 4A).
  6. A partnership consisting of an individual and a company is carrying on a bona fide property development business. It purchases a chargeable interest in a dwelling for redevelopment and resale. The interest costs £2.5 million. The higher rate charge does not apply and SDLT is payable at the standard rates.