There is much confusion about the rates at which Stamp Duty Land Tax should be paid when buying a building plot.
A number of ‘expert’ websites incorrectly state that non-residential (commercial) rates apply.
Unfortunately, it is not that simple and it is a trap for the unwary. Why does it matter?
Firstly, because the nil rate band (the amount before which you pay any tax) is £125,000.00 for residential property and £150,000.00 for non –residential property. Secondly, the residential rates rise after £925,000.00 and the non-residential rates do not. Thus, where residential rates apply there is a significant increase in the amount of Stamp Duty Land Tax to be paid. Failure to pay the correct amount of tax can also result in penalties and interest.
It seems odd that the purchase of a bare plot of land can be taxed in different ways but this is the case. A mere plot on which a dwelling is to be constructed is not a dwelling even if planning permission has been obtained and site preparation work has started. So far so good.
However, if that plot forms part of the gardens or grounds of an existing dwelling it is deemed to be residential property even if it is bare land. This is because ‘residential property’ means a building used or suitable for use as a dwelling or in the process of being constructed or adapted for such use. Crucially, the grounds or gardens will count as part of the dwelling. So, if the plot you are purchasing forms part of an existing gardens or grounds of a house tax is payable at the residential not non-residential rates.
This is only one of the myriad of complexities thrown up by the Stamp Duty Land Tax legislation and specialist legal advice is essential if you are to avoid the risk of penalties and interest.