A company is a “non-natural person” and the definition also includes a partnership (if at least one of the members is a company) and a collective investment scheme. The 15% rate for residential properties was introduced alongside the annual tax for enveloped dwellings (ATED) and the two regimes share a number of similarities.
What is a dwelling?
A property is treated as a dwelling if it is used, or suitable for use, as a single dwelling or is in the process of being constructed, or adapted, for use as a single dwelling. The garden or grounds enjoyed with the dwelling are considered part of the dwelling, as are interests over land that benefit the dwelling (such as a garage). The rules also explain which properties do not fall within the definition of dwelling; for example, hotels, halls of residence and care homes.
Interaction with standard SDLT rules
If a transaction includes a dwelling and the consideration paid, based on a fair and reasonable apportionment of the total consideration, is over £500k, the enveloped dwelling rules treat the acquisition of the dwelling as a separate transaction and apply the 15% rate to it. This can apply to the acquisition of a number of dwellings or the acquisition of a mixture of dwellings and commercial properties (for example a farm and farmhouse). The normal SDLT rule that treats the purchase of a mixture of commercial and residential land as non-residential does not apply in respect of the high value dwelling. Similarly, a high-value residential property cannot be included within a claim for multiple dwellings relief when acquiring more than one dwelling as part of a single transaction.
Are there any reliefs available?
As with ATED, there are a number of reliefs that disapply the 15% rate for enveloped dwellings. Where a relief is available the normal SDLT rules apply (which may, depending on the circumstances, result in the additional 3% residential rate applying nevertheless). The reliefs remove a purchase from the ambit of the 15% regime where the dwelling is acquired exclusively for any of the following purposes:
- a property rental business where the property is let to unconnected third parties
- development or redevelopment as part of a property development trade
- a property trading business
- for use in a commercially run trade
- as the business premises of a property rental business
- for use as a farmhouse by a qualifying farm worker as part of a farming trade
- for use by an employee for the purposes of a qualifying business
- for occupation by a caretaker
- if it is open to the public for at least 28 days per annum.
There are a number of conditions for each relief that will need to be satisfied and should be considered carefully. These conditions will need to be satisfied for the three years following the date of acquisition and, if they are not, the SDLT originally saved will become payable under a clawback mechanism.
SDLT returns are due within 30 days of the effective date of the transaction which, in most cases, will be the date of completion. Any relief claimed must be claimed in the relevant SDLT return.
SDLT should be considered at an early stage so that the tax position can be explored and alternative methods of holding the property considered.
The content of this article is for general information purposes only. For further information regarding Stamp Duty Land Tax, please contact Karl Pocock on +44 (0)1603 756544 or [email protected]. Law covered as at November 2017.