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5% Stamp Duty for Residential Property


Since the introduction of SDLT, on 1 December 2003, the top rate of SDLT has been 4%. This rate has applied to commercial and residential land transactions where the chargeable consideration exceeds £500,000.


In the March 2010 Budget, the government announced a new 5% top rate of SDLT for residential property over £1 million. The new higher rate, confirmed in the June 2010 Budget, applies to residential purchases where the effective date is on or after 6 April 2011 (unless the transitional rules apply).

Therefore, from 6 April 2011, where the chargeable consideration exceeds £1 million, it will be necessary to determine whether property is residential or non-residential in order to apply the correct rate of SDLT.

From now entirely residential property will be changed at Table A rates and non-residential or mixed property (partly residential and partly non-residential) property will be charged at Table B rates (where the top rate of tax is still 4%).

But what is residential property?

Section 116(1) of Finance Act 2003 defines residential property as property that comprises land and/or buildings:


  • Used as a dwelling.
  • Suitable for use as a dwelling.
  • In the process of being constructed or adapted for use as a dwelling.


If a property meets any one of the three separate tests it will be treated as residential property, as will any garden or grounds belonging to it (including any building or structure on such garden or grounds) and any interests or rights attaching to it.

For these purposes, a “building” includes any part of a building (section 116(6), Finance Act 2003).

A building used for any of the following purposes is “used as a dwelling”:


  • Residential accommodation for school pupils or students (but not halls of residence for students in higher or further education).
  • Residential accommodation for members of the armed forces.


An institution that is the sole or main residence of at least 90% of its residents, except where the institution is used as a:


  • children’s home;
  • hall of residence for students in higher or further education;
  • care home or rehabilitation home;
  • hospital or hospice;
  • prison or similar establishment; or
  • hotel, inn or similar establishment.


Where there is a single transaction for the sale or grant of a lease of six or more separate dwellings, none of those properties will be residential property. Instead, those properties will be treated for SDLT purposes as non-residential property.

Non-residential property means any property that is not residential property.

Applying the rules to typical land transactions

Sale of a commercial property for residential development

Whether a property is residential is determined by reference to its use, or suitability for use, at the effective date of the land transaction. Therefore, if a property is not residential at the effective date, its subsequent conversion to residential will not alter that.

For example, if a hotel, inn, or similar establishment is acquired for the purpose of converting it into residential flats, this would be a non-residential acquisition. If the hotel or inn includes accommodation for staff or owners this may make it mixed property, but it would still attract the Table B rates of SDLT.

Sale of a residential property for commercial development

If a property is residential at the effective date, its subsequent conversion to non-residential will not alter that. This will be the case even if the property has been vacant for some time prior to the effective date unless it is no longer suitable for use as a dwelling. Paragraph 16 of SP 1/04 states that if a building is not in use at the effective date, but its last use was as a dwelling it will be treated as suitable for use as a dwelling unless there is contrary evidence. This might be the case, for example, if the property has become derelict.

Sale of undeveloped land

In general, this will be non-residential land. However, if the land is or forms part of the garden or grounds of a residential building, it will be residential. Paragraph 35 of SP 1/04 states that HMRC will apply a similar test to that applied for the purposes of the capital gains tax main residence relief in section 222(3) of the Taxation of Chargeable Gains Act 1992. This means that land needed for the reasonable enjoyment of the dwelling (taking account of its size and nature) will be residential land.

Sale of a dwelling also used for business

Many residential properties are also used partly for business. A solicitor, accountant, physiotherapist, hairdresser and so on, may set aside one or more rooms in a dwelling from which to carry on his or her business. Using the dwelling partly for a business use will not automatically mean that the property is non-residential. The test is whether the property is used as a dwelling “or suitable for use as a dwelling”. In many cases the rooms set aside for business use will remain suitable for use as a dwelling (see paragraph 18 of SP 1/04) and, therefore, will remain residential.

In contrast, the sale of a commercial building with a residential element will be mixed property subject to Table B rates. Examples of this would be the sale of an office block with a residential flat or sale of a shop with a dwelling above.

Sale of portfolio of dwellings

A buyer may, for example, acquire a portfolio of dwellings (say, buy-to-let properties) from a seller under a single bargain. If there are six or more separate dwellings, all of the properties will be regarded as non-residential. This is a specific exemption (see What is residential property?), which has its limitations. For example, it would not usually be available where a developer acquires a number of dwellings in a particular location from a number of separate sellers (as this is unlikely to be done under a single transaction).

In the 2011 Budget, the government announced the introduction of a new relief for multiple purchases of residential property. It will apply to transactions with an effective date on or after the date of Royal Assent of the Finance Bill 2011. The relief operates by fixing the rate of SDLT chargeable on each dwelling by reference to the mean consideration, that is, the aggregate consideration attributable to the dwellings divided by the number of dwellings. The effect is to charge SDLT on each dwelling by reference to the rate applicable to the mean consideration rather than the aggregate consideration.

The relief will apply both to transactions between the same seller and buyer and to linked transactions. Therefore, if B’s acquisition from S is linked to B’s acquisition from S’s subsidiary company, the relief will apply. (For further information see Legal update, 2011 Budget: key business tax announcements: SDLT relief for multiple residential purchases.)

Single sale of residential property and separate commercial property

This might arise in a variety of situations. For example, a buyer acquires from the same seller:


  • A residential property and an adjacent commercial property.
  • A farmhouse together with agricultural land.
  • A high value residential property along with a plot of low value non-residential land.


Assuming that the chargeable consideration exceeds £1 million, which rate of SDLT applies: 4% or 5%? One view is that the 4% rate applies. This is because section 55 applies the Table B rates if the relevant land that is the subject-matter of the chargeable transaction consists of, or includes, land that is non-residential. Table A rates apply only where the relevant land is entirely residential.

Intuitively, it might be thought that the rate of SDLT applies on a property by property basis. If so, under a single contract, Table B rates would apply to those properties that are non-residential, and Table A rates would apply to those properties that are residential. However, section 55 refers to a chargeable transaction. This suggests a single bargain so that, for example, if a low value commercial property were included in a contract for the sale of a high value residential property, this would be a single chargeable transaction. As the relevant land would not be entirely residential, the Table B rates would apply.

However, this is unlikely to be intended. An alternative view is that a chargeable transaction is simply a land transaction that is not exempt (sections 43 and 49, Finance Act 2003) and that land transaction is synonymous with a single property. This could be supported by paragraph 4 of Schedule 4 to the Finance Act 2003. This is concerned with the apportionment of consideration attributable to two or more land transactions, or in part to a land transaction and in part to a non-land transaction. It provides that consideration given for one bargain must be treated as attributable to all elements of it even though there are separate transactions. This suggests that a single bargain can consist of more than one transaction.

The position is not free from doubt and it seems likely that HMRC will give its view on this when it publishes its guidance.

Linked transactions

One transaction is linked with another if they form part of a single scheme, arrangement or series of transactions between the same vendor and purchaser or persons connected with them (section 108, Finance Act 2003). Where a land transaction is one of a number of linked transactions, for the purposes of section 55:

The relevant land is any land an interest in which is the main subject-matter of any of the linked transactions.

The relevant consideration is the total of the chargeable consideration for all the linked transactions.

Therefore, if a residential and a non-residential land transaction are linked, the Table B rates would apply. This is because the relevant land comprises both the residential and non-residential land. Therefore, if a residential property is bought for £350,000 and it is linked with the purchase of a commercial property for £700,000, the applicable rate of SDLT for both transactions would be 4%. As the relevant land is not entirely residential (so that the Table B rates apply) and the aggregate consideration is £1,050,000, the top rate of 4% (in Table B) applies.

In the 2011 Budget, the government announced the introduction of a new relief for multiple purchases of residential property (see http://www.ker.co.uk/News/residential-property/107-budget-2011-stamp-duty-land-tax-review.html ). Where an acquisition of two or more dwellings is linked to a non-residential transaction, the non-residential transaction (including the consideration for it) will be excluded from the calculation of the mean consideration for the dwellings. However, the rate of tax applicable to the non-residential transaction will be determined by reference to the aggregate consideration for all the linked transactions.


For further information on residential and commercial property matters including Stamp Duty contact Mark Sadler at kenneth elliott + rowe solicitors on 01708 757575 or email mark.sadler@ker.co.uk



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