Do You Pay Stamp Duty On A Derelict Property?

Building which pays stamp duty on a derelict property
Many people believe there is no stamp duty on a derelict property, but this may not be the case. Photo © Marathon (cc-by-sa/2.0)

Do You Pay Stamp Duty On A Derelict Property?

Stamp Duty Land Tax is payable by anyone who buys a property in England or Northern Ireland. The amount of tax payable depends upon the price of the property and it applies to both freehold and leasehold homes, buildings and land. The rules for Scotland and Wales are different.

In Scotland the tax is titled Land and Buildings Transaction Tax and in Wales it is a Land Transaction Tax for any sale completed after 1 April 2018. Properties below the price threshold are not liable to pay Stamp Duty.

If you buy a second home such as a holiday home or a buy-to-let property there is a higher rate of tax payable but the price threshold is lower for that property. Regarding the case for Stamp Duty on a derelict property, the rules are more complex.

Stamp Duty Calculators:

Photo of an old derelict house
If you are buying a derelict property it is wise to first find out if you have to pay stamp duty on a derelict property. Photo © Paul Bryan (cc-by-sa/2.0)

Why Do I Have To Pay Stamp Duty?

The Stamp Duty tax was originally introduced in 1694 to raise money to pay for war. Now it is a major source of revenue for the government.

The rates of Stamp Duty have changed over the years and in the past only wealthier buyers were the ones who had to pay it. However, as the price of properties in the UK have drastically risen in recent decades, now more people are finding that they fall into the category of people due to pay the tax.

When Is Stamp Duty Payable?

Stamp Duty is payable within 30 days of taking possession of a property. Your solicitor or conveyancer should ensure that you are aware of this obligation so that you do not miss the deadline. Failure to pay on time means you will incur a penalty to HMRC.

How much are stamp duty penalties?

Penalties vary depending upon how late the submission of documents. If the payment is late by up to 12 months the fee is 10% of the duty and there is a cap of £300. The fees rise if the payment is delayed by longer than 12 months. There is an an appeal process and HMRC will consider reasonable excuses for lateness.

Photo of a Derelict cottage
Penalies for being late with paying stamp duty can be high, so make sure you are aware of your situation. Photo © Graham Robson (cc-by-sa/2.0

Non Residential Stamp Duty

Stamp Duty is payable on non-residential property such as agricultural land for sale, forests and woodland for sale, shops and offices.

Mixed property such as one that has a flat and a shop or office is also liable to the tax.

If you buy a new leasehold non-residential property the tax is payable on both the purchase price and the annual rent. Stamp Duty on a derelict property also applies to non-residential purchases.

Rates for non-residential properties are complex and can the worked out using the SDLT calculator on the HMRC website. Your lawyer will be able to help with this.

Is There Any Way To Reduce Stamp Duty?

Although there are several specialist companies which claim they can reduce your Stamp Duty obligations, schemes like this are very high risk. One common tactic to reduce stamp duty is to transfer the property to the buyer in stages so that the buyer does not pay over the threshold price at any one time.

Another gambit is to inflate the price of fixtures and fitting and pay for these in a separate transaction. It is important to note that HMRC will carefully examine any property sale that falls just below the threshold and there are severe penalties for any attempted fraud that results in tax avoidance.

Image of a derelict property exempt from stamp duty
While certain derelict properties may be exempt from stamp duty, this will vary depending on value and circumstances. Photo © Graham Robson (cc-by-sa/2.0


What Kind Of Property Is Exempt From Stamp Duty?

Any property that is sold at less than the Stamp Duty threshold value is exempt from Stamp Duty. Additionally, first time buyers either for a full purchase or purchase of a shared property can claim relief for properties bought after November 2017.

There is SDLT relief for multiple dwellings and for a property trader or developer who buys an existing house whilst building the seller a new home. Employers who buy a house from an employee because they are being moved elsewhere can also claim exemption if certain conditions are met.

The full list of stamp duty exemptions is shown on the website.

Stamp Duty On A Derelict Property FAQ

Is Stamp Duty Payable By First Time Buyers?

Stamp Duty exemption applies to first time buyers who buy a property below the threshold and who have never owned a property anywhere in the world. If you have inherited a property you are not classed as a first time buyer. Additionally, if you buy a property solely to rent out you will not be eligible for the exemption.

Is Stamp Duty Payable On Derelict Property In Scotland?

The Land and Buildings Transaction Tax mirrors the Stamp Duty Land Tax levied in England and Northern Ireland. A case can be made to challenge the tax on a derelict property if it is not habitable but each case is reviewed individually so the tax may still be payable.

What Rate Of Stamp Duty Is Due On Derelict Buildings?

The current threshold for Stamp Duty is £500.000 whether the property is derelict or not. The lowest rate is 5% for properties valued between £500,001 to £925,000. For properties valued from £925,001 to £1.5 million the buyer pays a rate of 10%. The highest rate is 12% for properties valued over and above £1.5 million.

Photo of a derelict property in England
You may or may not have to pay tax on a derelict property, but individuals should seek independent legal advice first. Photo © Philip Halling (cc-by-sa/2.0)

Surcharges On Stamp Duty

In April 2016 the government introduced a surcharge on Stamp Duty for second homes or buy-to-let purchases for individuals and any properties bought by a company. The surcharge is 3% above the normal stamp duty rate applied to any property.

This surcharge also applies to derelict properties. However, derelict properties priced below £40,000 are exempt.

Developers buying up properties for renovation still have to pay the surcharge. In addition, if you are buying a property with someone else who already owns another home, the surcharge is payable.

Stamp Duty On A Derelict Property

Paying Stamp Duty on a derelict property has been the subject of much controversy. A property in need of renovation or development may be uninhabitable.

In this instance council tax can be waived but if the value of the property is over the price threshold then Stamp Duty surcharge is payable.

In 2019 a developer challenged HMRC over the Stamp Duty on a derelict property that they deemed to be uninhabitable. Although connected to mains services the property had asbestos that need removing and missing floorboards. The tribunal concluded that at the time of purchase the property was not suitable for use as a dwelling and the surcharge should not apply.

Photo of derelict buildings near the sea
If certain derelict buildings are classed as uninhabitable it may qualify for being exempt from stamp duty. Photo © Jeff Buck (cc-by-sa/2.0)

Property Resources:

Conclusions – Stamp Duty On A Derelict Property

Stamp Duty is payable for any property purchase that falls above the threshold price. At the moment this threshold is £500,000 as long as the property is not a second home.

Rates for properties valued over this sum increase gradually up to the value of £1.5 million which is 12% and the highest rate payable.

If the derelict property you want to buy is below £500,000 no Stamp Duty is due unless you already own another property. If the property is a second purchase and is valued at over £40,000 Stamp Duty and the surcharge may apply.

Although Stamp Duty for a derelict property has been challenged under the uninhabitable ruling, each case is individual so do not assume that Stamp Duty will not be payable when you purchase a derelict property.

A solicitor will be able to provide professional advice concerning Stamp Duty on derelict property.

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