Depending on the precise circumstances, the application of the residential rates of Stamp Duty Land Tax (SDLT) can lead to very high tax liabilities. However, if you are buying a former residential property that has fallen into significant disrepair, it may be possible to mitigate that SDLT liability by, legitimately, applying the non-residential rates.
The residential rates of SDLT can result in more SDLT being payable compared to the non-residential rates. As a reminder, the SDLT rates are set out in tables 1-3 below. Note that there is a 17% flat rate of SDLT where companies acquire a single residential dwelling(s) for more than £500,000.
Where a property which was last used as a residential dwelling is now derelict or in such a poor state of repair that it is unsuitable for use as a dwelling, it could fall outside of the residential SDLT regime, subject to the specific facts of each case.
The non-residential rates of SDLT can clearly provide an advantage to a corporate purchaser of a dwelling. For example:
- ABC Ltd is a property development company and is purchasing a property last used as a residential dwelling for £2,500,000.
- Assuming that ABC Ltd can benefit from a relief from the 15% flat rate as a property developer, HRAD will apply.
- The total SDLT due applying HRAD will be £336,250. If relief from the 17% rate was withdrawn ABC Ltd’s SDLT liability could be as high as £425,000.
If, however, the property was unsuitable for use as a dwelling within the scope of HMRC’s guidance, this would allow the non-residential rates of SDLT to apply. The SDLT liability for ABC Ltd for the same purchase, but applying the non-residential rates of SDLT, would be £114,500. This reclassification of the property from residential to non-residential could therefore result, in this example, of an SDLT saving of between £221,750 – £310,500 depending on the applicable residential rate.
HMRC has recently updated their guidance on the topic. The revised guidance is largely in response to the amount of SDLT applications and/or repayment claims HMRC receives in relation to this area which it believes are incorrect. A notable addition to the HMRC guidance is the reference to four First-Tier Tribunal decisions which demonstrate the high threshold that must be met for a property to be treated as derelict. We set out below some of the key points considered when analysing whether a property is derelict:
Is the property structurally sound at completion? If it is, then it is unlikely to be treated as derelict. HMRC guidance currently places great weight on “structural defects that would make the property dangerous to work on and/or live in”. If these are absent, it is highly unlikely that the property in question will be derelict for SDLT.
The Birketts view
The case law referred to in the HMRC guidance highlights the importance of having a fundamental level of disrepair when claiming that a dwelling is derelict. The recent cases predominately serve as a reminder to taxpayers and advisors as to the high threshold dereliction claims need to satisfy, and the approach strictly adopted by HMRC when such claims/applications do not meet such a threshold.
The Tribunal has consistently highlighted that there has to be a “significant degree of disrepair” for a property to be condemned derelict and, therefore, treated as non-residential for SDLT purposes. The Tribunal has also commented that the suitability of the use of the dwelling does not mean suitable for “immediate use and occupation on the effective date”. Non-structural matters than can be relatively easily remedied (even if the cost to do so is material) are highly unlikely to make a residential property derelict for SDLT purposes.
Table 1
Residential rates of SDLT up to 31 March 2025 | Standard rate | Higher rate |
Up to £250k | 0% | 5% |
Next £675k (portion from £250,001 to £925k) | 5% | 10% |
Next £575k (portion from £925,001 to £1.5m) | 10% | 15% |
Remaining amount (portion above £1.5m) | 12% | 17% |
Table 2
Non-Residential (Commercial and mixed use) | Rate |
Up to £150k | 0% |
Next £100k (portion from £150,001 to £250k) | 2% |
Remaining amount (portion above £250k) | 5% |
Table 3
Residential rates of SDLT from 1 April 2025 | Standard rate | Higher rate | |
Up to £125k | 0% | 5% | |
Next £125k (portion from £125,001 to £250k) | 2% | 7% | |
Next £675k (portion from £250,001 to £925k) | 5% | 10% | |
Next £575k (portion from £925,001 to £1.5m) | 10% | 15% | |
Remaining amount (portion above £1.5m) | 12% | 17% |
The content of this article is for general information purposes only. For further information regarding Stamp Duty Land Tax, please contact Karl Pocock or Ben Clarke. Law covered as at January 2025.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2025.