SDLT When 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.

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 and 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, such as 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).

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., which depending on the facts 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.

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

If buying a dwelling and its garden, the residential rates will apply and it’s likely the 3% surcharge will also be payable by the developer. For a purchase of £1m, the SDLT would be £73,750.

If buying land from the ‘garden or grounds’, but not the dwelling itself, the residential rates will apply, however there will NOT be any 3% surcharge if the dwelling is not also being purchased. For a purchase of £1m, the SDLT would be £43,750.

Finally, if buying land which is not part of the ‘garden or grounds’ of a dwelling, the transaction will be non-residential and SDLT for a purchase of £1m would be £39,500.

Of course, there are many other aspects of the transaction to consider which may also have an impact on the SDLT position. For example, are there multiple dwellings being purchased? Is there an arrangement for the seller to retain one or two of the newly built properties? Is the land being acquired pursuant to an option? The list goes on!

If you would like to discuss any of the issues raised in more detail or if you would like to speak with a member of our Construction & Real Estate team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

This article featured in issue 10 of our construction and real estate newsletter series. Read the full newsletter here: Real Estate Matters Issue 10