SDLT for the Company Purchaser: which rates apply to my residential property purchase?

Whilst there remains only one “commercial” rate of stamp duty land tax (SDLT) there are now four “residential” rates of SDLT that can apply to the acquisition of a residential property, three of which typically apply to companies. The applicable rate depends on the purchaser’s individual circumstances and intentions. This briefing summarises the rates and their application to corporate purchasers of English residential property.  

Please note that corporate purchasers acting in their capacity as trustees of a settlement can be subject to different rules and this briefing does not cover those situations.

15% flat rate

The flat 15% rate of SDLT applies to companies purchasing residential property with a value of over £500,000. The 15% rate is deliberately punitive and designed to discourage corporate ownership of residential property for personal use. It therefore always applies to corporate purchases of residential property unless the value of the property is below the threshold or one of the reliefs from the 15% rate applies.

Reliefs from the 15% rate are available for specified commercial uses such as those properties which are let out commercially, made available to the public, or for occupation by an employee of the trade (amongst others). Each of these reliefs has their own specific conditions but there are some key issues to bear in mind:

1. Clawback
   The reliefs are subject to clawback if within three years of completion, the property is no longer used for the purpose specified in the relief. Importantly where the property is to be used as part of a property business (whether for letting or development), certain individuals cannot occupy the property for three years after completion even if that occupation is on commercial terms. These ‘non-qualifying individuals’ include shareholders, their relatives and other persons connected to the purchasing company.
2. Multiple properties
   Where a transaction includes both higher value residential property and other property (whether residential or non-residential) then the consideration attributable to the higher value residential property can be subject to the 15% rate with the remainder subject to the rate that would otherwise be applicable to the purchase. This differs from the general SDLT position whereby the whole transaction takes the same tax treatment.
3. SDLT Return
   Relief from the 15% rate must be claimed within a land transaction return by inserting code 35. If it is not actively claimed the relief does not apply.

Higher Rates for additional dwellings

The higher rates of SDLT are as follows:

Where the 15% surcharge does not apply, the higher rate applies to corporate purchases of freehold and long leasehold properties which are not subject to long leases and where the consideration is over £40,000. This means that almost all corporate purchases of residential properties are subject to the higher rates, whether or not the purchaser already owns another residential property.

Standard rates

The standard rates of SDLT are as follows:

Corporate purchasers are unlikely to pay the standard rates of SDLT where they are purchasing a residential property. The standard rate will only be relevant where the consideration is less than £40,000 or the property is subject to a long lease.  

Non-resident surcharge

Irrespective of whether the higher or standard rates apply to a purchase, non-resident purchasers of freehold or long leasehold properties pay an additional 2% SDLT in addition to the existing standard or higher rate charge as shown in the table below.

The application of the higher rates means that where the 15% charge applies, non-resident corporate purchasers pay a flat rate of 17%. As with the higher rates the test for non-residence is applied to each purchaser in the transaction so where one purchaser meets the test the entire transaction will be subject to the surcharge.

The surcharge applies to corporate purchasers who are not UK resident for corporation tax purposes. Companies are generally UK tax resident either by virtue of incorporation or by virtue of management and control being present in the UK. UK resident companies that are broadly controlled by five or fewer persons who include non-UK residents can also be considered non-resident for the purposes of the surcharge. Unlike the non-resident surcharge for individuals, companies cannot reclaim the surcharge if they subsequently become UK resident. A more detailed analysis of the non-resident surcharge is set out here.

If you require further information about anything covered in this briefing, please contact Katjana Cleasby or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2023