The SDLT treatment of residential property purchased by companies is often reduced to a simple rule: if a company buys a dwelling for more than £500,000, it pays SDLT at 17%. In reality, the position is more nuanced, and assuming that the 17% rate automatically applies can produce the wrong result.
The 17% rate applies to certain acquisitions of high value residential property by companies and other non natural persons. It is a single rate applied to the relevant chargeable consideration, rather than the progressive banded system used for most residential property purchases. Since 31st October 2024, the rate has been 17%.
However, the fact that the purchaser is a company and the property costs more than £500,000 does not necessarily mean that the transaction falls within this regime. There are a number of important statutory reliefs and exclusions, particularly where the property is being acquired for a qualifying commercial purpose.
These can include acquisitions for a property rental business, property development or property trading, certain businesses that make dwellings available to the public, qualifying employee accommodation and other specified circumstances. Where the relevant conditions are satisfied, the 17% rate may not apply and the transaction may instead be taxed under the normal rules applying to company purchases of residential property.
A company acquiring a £750,000 property to operate as part of a genuine commercial lettings business, for example, is therefore in a very different position from a company acquiring the same property for occupation by a connected individual. The purchase price may be identical, but the SDLT treatment can be very different.
The purpose of the acquisition is important, but simply describing a property as an investment or stating that it will be rented out is not enough. The statutory conditions for the relevant relief must be satisfied. HMRC also distinguishes between genuine property trading activity and investment, meaning that a company buying a property primarily to hold it for long term capital growth will not necessarily qualify for relief intended for property traders.
Transactions involving more than one property or a mixture of different interests can add another layer of complexity. Where a transaction includes a higher threshold residential interest alongside other property, it may be necessary to apportion the consideration on a just and reasonable basis and apply different SDLT treatment to different elements of the acquisition.
For conveyancers, the important point is that a company purchase above £500,000 should trigger further questions rather than an automatic assumption that 17% SDLT is payable. The purchaser’s structure, the intended use of the property, the availability of reliefs and the nature of everything being acquired can all affect the final liability.
In this area in particular, the difference between applying the headline rule and examining the underlying transaction can be very significant.
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This article was submitted by Compass as part of an advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the advertiser and not those of Today’s Conveyancer.
