Excerpt from; Stamp Duty Land Tax Guide For Property Investors.

Development Land With Non-Residential Buildings

(Strategies Using SDLT Reliefs & Classifications)

Section Summary: This section discusses the benefits of acquiring mixed-use or non-residential properties to reduce Stamp Duty Land Tax (SDLT).

Key Points:

  • Mixed-use properties combine residential and commercial elements.
  • Non-residential properties are solely for commercial use.
  • Both types attract lower SDLT rates than purely residential properties.

Main Principles: Purchasing non-residential or mixed-use properties can lead to substantial reductions in SDLT and offers flexibility in development, allowing for adaptations based on market demands and planning permissions.

One effective strategy is focusing on acquiring mixed-use or non-residential land. This approach can lead to substantial reductions in SDLT.

What Are Mixed-Use and Non-Residential Properties?

  • Mixed-Use Properties: These properties combine both residential and commercial elements. For example, a building might have retail shops on the ground floor and apartments above.
  • Non-Residential Properties: These are properties used solely for commercial purposes, such as offices, factories, or warehouses.

Purchasing such properties can attract lower SDLT rates compared to buying residential properties. This is because SDLT rates for non-residential or mixed-use properties are generally lower than those for residential properties.

Understanding SDLT Rates

SDLT rates vary depending on whether a property is classified as residential, non-residential, or mixed-use:

  • Residential SDLT Rates are tiered based on the purchase price, and can be significantly higher, especially for more expensive properties.
  • Non-Residential SDLT Rates apply to commercial properties and land, and are typically lower. For example, a flat rate may apply after a certain threshold, which is beneficial for high-value purchases.

By purchasing land or properties classified as non-residential or mixed-use, developers can pay SDLT at these lower rates.

The Benefits of Targeting Non-Residential or Mixed-Use Land

Lower SDLT Costs

Paying SDLT at non-residential rates can lead to significant cost reductions, especially for larger development projects. For instance, buying an old factory to convert into residential flats would incur SDLT at non-residential rates.

Flexibility in Development

Purchasing non-residential or mixed-use land offers developers greater flexibility. They can decide to continue with the commercial use, convert to residential, or develop a mix of both, depending on market demand and planning permissions.

Examples to Illustrate the Point

Example 1: Converting Commercial to Residential

A developer purchases an old warehouse for £1 million. As the warehouse is classified as non-residential, the developer pays SDLT at non-residential rates. After acquiring the property, the developer obtains planning permission to convert the warehouse into residential apartments. Despite changing the property’s use, the initial SDLT benefits make the project more financially viable.

Example 2: Developing Mixed-Use Properties

A developer buys a piece of land with a small office building on it for £500,000. The purchase attracts non-residential SDLT rates. Later, the developer secures planning permission to add residential units to the property while keeping the office space. This mixed-use development benefits from the initial non-residential SDLT rate, optimising the project’s overall tax liability.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.