Stamp duty, or Stamp Duty Land Tax (SDLT) in England and Northern Ireland, is a tax paid on residential properties or land in the UK. There are many exemptions in place when it comes to stamp duty, and often people are confused as to what a ‘residential’ property is in regards to stamp duty. Read on to find out what stamp duty is and how it works for residential and non-residential properties or land in the UK. 

 

What Is a Residential Property? 

A residential property, by general legal definition, is a building that is lived in and therefore suitable for dwelling-purposes. Residential properties are specifically for living in, whether that be for an individual or household. Residential properties are homes which are either owned and lived in by occupants or rented out under rental agreements, either through private landlords or companies.

When residential homes, or land, are bought in England and Northern Ireland, purchasers are required to pay stamp duty – a land tax on residential properties in the UK. Residential properties worth below £250,000 are exempt from stamp duty, while those above this threshold fall within different tax brackets depending on the value of the property. 

Scotland and Wales have their own tax schemes, which have different thresholds for residential properties. You can find out how much stamp duty you will owe based on the value of a house through an online stamp duty calculator. 

 

What Is a Non-Residential Property? 

A non-residential property, meanwhile, is a building which is not fit for everyday living. In other words, a building or structure which is not fit for human habitation due to certain factors.

Many people opt to buy non-residential properties in the UK, as stamp duty rates differ for these and are generally lower. For instance, residential properties in the UK above the value of £250,000 are expected to pay tax. The normal rates range from 0-12%, and how much you pay depends on which bracket the property value falls within. 

In contrast, recent case law in the UK has changed the understanding of stamp duty in regards to non-residential properties. In 2019, an individual in a case in England highlighted that residential properties have to be fit for everyday living. The individual in question, who bought property through a company and was told by HMRC that the usual stamp duty rates applied (despite being under the impression it was a non-residential property). 

Consequently, the individual was subject to higher tax rates due to a vague definition of what constitutes a ‘residential’ property. The court, at a later date, however, ruled that the property did not have the necessary facilities present at purchase, thus deeming it non-residential. 

Following this, it has helped clear up confusion surrounding non-residential properties and stamp duty. 

According to HMRC, non-residential properties include:

  • Commercial property e.g. shops and offices
  • Buildings not suitable to be lived in
  • Forests 
  • Agricultural land e.g. working farm 
  • Any other land not part of a dwelling’s garden or grounds
  • 6 or more residential properties bought in a single transaction 

 

What Makes a Property Uninhabitable?

Therefore, if a property is uninhabitable at the time of purchase it will be categorised as a ‘non-residential’ property – meaning lower tax rates in stamp duty apply. 

An uninhabitable property is defined as non-residential if one or more of the following applies at the time of purchase:

  • There is presence of asbestos in the building
  • There is no running, clean water 
  • There is presence of damp or mould which could cause health risks
  • The structure of the house deems it not weatherproof 
  • It does not meet building regulations e.g. suitable stair railings 
  • There is presence of lead (in water pipes or older paints)
  • The roof is considered non-standard 

If you have paid normal stamp duty rates for an uninhabitable home, then you may be entitled to a stamp duty rebate from HMRC. Find out more information here, or get in touch with us at Stamp Duty Rebate. 

 

How Does Stamp Duty Work for Non-Residential Properties? 

Whether you purchase a house, flat or bungalow – stamp duty land tax (SDLT) will apply whether it is considered residential or not. A non-residential property also includes buildings which are going to be used for commercial purposes, such as shops. 

It is important to keep in mind that if a building is purchased, and developments for turning into a residential property have begun, then it will be required to pay normal residential stamp duty rates.

A ‘mixed’ property, meanwhile, is one which has both residential and non-residential elements. For example, a flat which is connected to a shop. 

Stamp duty rates and how much they cost for non-residential purchases differ completely to residential rates. Stamp duty is payable on non-residential properties worth over £150,000 in England and Wales. 

 

How Much Stamp Duty Will I Pay on Non-Residential Property Transactions? 

Under the current system set out by HMRC, the stamp duty tax rates are as follows:

Property or lease premium or transfer value

SDLT rate
Up to £150,000 0%
£150,001 to £250,000 2%
The remaining amount (the remaining portion above £250,001) 5%

In addition, when a non-residential or mixed-use property is bought, you will also be required to pay the lease premium (the purchase price of the lease) with the rates above, as well as the net present value (the value of the annual rent you will pay). The net present value (NPV), however, will not be paid on the NPV if it is worth less than £150,000.