01 Nov Stamp duty in Residential properties and land
Grounds and gardens for SDLT – Stamp Duty on Land & Garden
Stamp duty land tax (SDLT) on residential property also applies to land that form the garden or grounds of the property. To ensure that the right rate of SDLT is applied, it is therefore important to ascertain whether any land purchased with a property constitutes its garden or grounds. The rules here are not the same as those applying for capital gains tax private residence relief.
HMRC have recently updated their guidance in this area.
Status of the building
The first step in determining whether land is residential land is to determine the status of the associated building. If the building is a residential property for SDLT purposes, all land forming part of the ‘garden or grounds’ is residential property. Consequently, if at the time of purchase the property is not capable of being used as a dwelling, or is in the process of being constructed or adapted for residential use, the building is not residential property for SDLT purposes and any associated land is also not residential property.
Status of the land
Land that constitutes the ‘garden or grounds’ of a building which counts as residential property for SDLT purposes will also be residential property, and therefore subject to SDLT residential property rates, even if it is sold separately from the building.
The key date is the date of the transaction. However, past use of the land is taken into account by HMRC is order to establish the relationship between the land and the building. Future or planned future use is not relevant, although where use changes over time, the status of the land may also change.
No single factor
In deciding whether land counts as ‘garden or grounds’ a range of factors will come into play – there is no single determining factor. However, not all factors will carry equal weight. It is necessary to consider how the land is used.
Questions to ask include:
- Is there evidence that the land has been actively and substantially exploited on a commercial basis?
- If the activity could be for leisure or commercial purposes, such as beekeeping or equestrian use, is there evidence of commercial use?
- Has a lease been granted to a third party for exclusive use of the land? This would suggest that the land is unlikely to be ‘garden or grounds’.
- Is the land of a type which would be expected to be ‘garden or grounds’ unless commercial use is established, such as land used as a paddock or orchard?
- Is the land agricultural land which is sitting fallow? Such land is unlikely to be regarded as ‘garden or grounds’.
The nature and layout of any outbuildings can be significant in determining whether land is ‘garden or grounds’. The presence of domestic outbuildings, areas laid out for hobbies, small orchards or stables and paddocks suitable for leisure use would indicate that the land is ‘garden or grounds’. However, the presence of commercial farming, commercial woodland, commercial equestrian use or other commercial use would suggest the contrary.
Size and proximity to dwelling
Physical proximity to the dwelling makes it more likely that the land is ‘garden or grounds’. However, land separated from the building may also fall into this category.
The size of the land in relation to the size of the building will also be relevant – a small cottage is unlikely to have a garden and grounds of many acres but a stately home may do.
The overall picture
In deciding the character of the land for SDLT purposes, it is necessary to look at the overall picture that emerges at the transaction date.
Additional note: FA 2003, s. 116(1)(a); HMRC’s Stamp Duty Land Tax Manual SDLTM00440ff.