The rate of stamp duty payable on residential property purchases over £1m increased from 4% to 5% from 6 April 2011. However, the new rate does not apply to commercial property so no doubt developers will be eager to learn whether their proposed development sites will count as residential or commercial property. Beth Sutton in Rawlison Butler’s Real Estate Team considers the implications of the change.
What is residential property?
Residential property will include buildings that are used or suitable for use as dwellings or buildings that are in the process of being built or adapted for such use. The new rate will not affect commercial property or mixed use property, nor does it apply to a purchase of 6 or more residential properties that form part of a single transaction.
It is the use or the suitability for a particular use at the effective date (usually the date of completion) that determines whether or not a property is residential or commercial.
What does this mean in practice?
Residential property purchases will include:
- the end portion of a house’s garden if the land is the garden or grounds of an existing house
- A single vacant house where the developer intends to demolish the house before starting development
Commercial property purchases will include:
- Farm land where there is a farm house on the site.
- A site for development where the land has 3 houses and a shop located on it
- Bare development sites
Conclusion
Land buying for residential development will not always mean that the land is residential and that the 5% rate applies to all purchase over £1m. A developer needs to look at what the land is being used for at the date of completion. If, at that point in time, the site is bare land and it does not form part of the garden to the existing house then the new rate will not apply, even if the developer starts building houses on it the next day!
For further information on this or any other property issue, please contact Beth Sutton by emailing Beth or by calling her on 08450 990045, or speak to your usual contact in the Real Estate Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.
