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Which Stamp Duty calculation should be used when purchasing land for residential development?

Navigating the tax implications that come with property investments can be difficult, particularly for purchases of land for development. As purchases for this type of land can be subject to either rate of Stamp Duty Land Tax (SDLT), it is important to check prior to investing what you will be paying.

The basic rule is if the land being acquired (under one bargain) consists entirely of residential property, then it will be subject to SDLT for Residential Purchases. However, where the land is both residential and non-residential, the transaction is subject to SDLT at commercial rates. This applies to any type of property that will be built, as the use of the property at the effective date of purchase overrides any past or intended future use.

What is Considered 'Residential'?

  • A building or buildings; or
  • Land that forms part of the garden or grounds of such a building or buildings

Once either of the above is established, these will then be used on the basis that, at the effective date (usually completion) of the transaction, is used, or is suitable for use, as a dwelling or less than six dwellings.

It’s also worth noting that land is also considered residential if it is undergoing construction of a building for use as a dwelling or less than six dwellings (see below).

Examples of purchases of residential property:

  • The purchase of the end portion of a house's garden
  • An acquisition of a single vacant house where the developer intends to demolish the property before commencing development

Examples of Residential Land Purchase

  • An off-plan acquisition of six flats by an investor landlord
  • An acquisition of a site for development where the site has three houses and a shop located on it; and
  • An acquisition of farmland where there is a farmhouse on the site

Note - a single transaction involving six or more dwellings is non-residential.

This is a complex area with various special exemptions, so always seek professional tax advice.  

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