SDLT considerations: buying land from the seller’s garden

Developers will often purchase land from residential property owners for a future property development. Depending on the land being acquired, the Stamp Duty Land Tax (SDLT) payable can be quite different.

Residential and non-residential purchases

There are two rates of SDLT, one for ‘residential’ and one for ‘non-residential’ purchases. Broadly, a residential transaction will include the purchase of a dwelling or the garden or grounds of a dwelling. Non-residential transactions include everything else.

Therefore, if a developer buys a residential property together with its garden and grounds, the residential rates of SDLT will apply. The 3% surcharge will likely be payable on the whole amount.

An exception to this could be when there is an element to the transaction which is not residential. This includes land which exceeds the ‘garden or grounds’ of the dwelling, or buildings which are suitable only for commercial use, such as farm buildings. In this case, non-residential rates would be payable on the whole amount (including the dwelling and gardens).

When acquiring land, it’s important to collect evidence to support any assessment that the non-residential rates apply.

You can read examples of the SDLT rates that would apply in certain scenarios in Real Estate Matters Issue 10

How do you Decide What the ‘Garden’ or the ‘Grounds’ of a Dwelling are?

The garden area is usually quite clearly marked out by fences, borders and/or perhaps a reasonably maintained lawn. However, the ‘grounds’ are not so easy to identify.

Previously, it had been considered that the ‘grounds’ include any land which is needed for the reasonable enjoyment of the dwelling, depending on the size and nature of the dwelling. A 20 bedroom mansion may require more land than a two bedroom bungalow!

Recently, we have seen HMRC apply the word ‘grounds’ indiscriminately to capture all land types surrounding a dwelling as residential transactions, such as fields and horse paddocks, etc. Depending on the facts, these could be non-residential even if not used commercially at the transaction date. HMRC’s aggressive approach here is undoubtedly due to the potential increased SDLT at stake, including the 3% surcharge should the dwelling itself also be acquired.

Of course, there are many other aspects of the transaction to consider which may also have an impact on the SDLT position. For further advice, please get in touch on 01903 234094.