A guide to stamp duty land tax on non-residential property

Posted 18th November 2022 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.

A Guide to Stamp Duty Land Tax on Non-Residential Property

Buying residential property can be a minefield when it comes to your Stamp Duty bill, with a variety of factors which may impact the final figure and most people being unaware of many of them. But what about if the property you’re buying is non-residential? You may have heard the Stamp Duty will be less, but are you fully up to speed with what the charges are, what may influence them and even what counts as a ‘non-residential’ property in the first place?

The What

It might seem simple – surely a non-residential property is any property which isn’t a house or flat? Well, that’s one potential example, but there are also many more:

Commercial Property – shops, office buildings and warehouses, to name but a few examples  – properties with a clear non-residential function. These are the most obvious examples of non-residential property within the strict definitions laid down by HMRC. But they are far from the only ones.

Property that isn’t suitable to be lived in – That might sound like an odd definition given the above, but bear in mind that this encompasses properties which are non-habitable at the time of purchase. This may be a house or flat which is derelict, purchased either as a ‘fixer upper’ or as a commercial investment in land. Either way, there are a strict set of criteria a property must meet to be classed as ‘uninhabitable’ for this purpose – being empty for a while or the utilities having been stopped isn’t enough.

Forests – Forest land is – you’ve guessed it – non-residential (unless you happen to be Robin Hood and his Merry Men, in which case you may have more direct issues with the Crown to deal with!)

Agricultural Land (which is either part of a working farm or used for agricultural reasons) – the land belonging to a farm, which may well not necessarily be directly physically attached to the farmhouse itself, as well as standalone fields or land used for agricultural purposes including livestock, grazing or crops.

Read: How long does a Stamp Duty Refund take?

Any other land/property not part of a dwelling’s garden or grounds – Where things can get muddier – literally and metaphorically. Think of large outbuildings which are unattached to a main residence, fields which are separate from a garden or the immediate grounds of a property and so on.

6 or More Residential Properties bought in a single transaction – deals like this, obviously done for commercial investment, also fall under the banner of ‘non-residential’ for Stamp Duty Purposes.

The Why

Why is this definition important to you as a buyer? Traditionally it would mean that you paid significantly less for almost any property that was defined as non-residential. Before the mini-budget of October 2022, residential zero-rate banding for Stamp Duty was set at £125,000, whereas for non-residential it was (and remains) set at £150,000.

Now that the zero-rate threshold on residential property has moved to £250,000, it’s clear that to achieve a beneficial saving on Stamp Duty vs buying a residential property, you would need to be looking at much higher purchase prices. For example, at £975,000, you would be looking at a saving of £500 on the Stamp Duty bill for a non-residential property as opposed to a residential one. At £1.5 million the gap is £26,750.

Read: Why HMRC’s stamp duty calculator isn’t always correct

The How

Whereas the above might seem straightforward, it’s worth bearing in mind that the acceptable HMRC definitions for these various states can be highly contested, based not simply on straightforward written legislation but also case law and individual circumstances.

Add in that many solicitors are still using HMRC’s own calculator which is extremely limited in determining the final liability and you have a recipe for potential disaster and costly tribunals down the line for those who go in blind.

The safest option, as always, is to consult with an expert tax adviser who is able to draw on years of experience and knowledge of the complexities of both the legislation and the case law to determine the correct outcome in all cases.

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.