Buying land to extend garden – is there a way to avoid stamp duty?

That's really disappointing Jane. The clear intention of the extra 3% SDLT is a tax on 2nd homes and rental properties. I don't believe it was intended to catch people extending their garden, and at the end of the day, that's what you will have done and not have a 2nd home or rental property.

However the solicitor has applied the rules as written and deemed you caught, albeit probably unintentionally.

Ah, I've just had a thought, which may be nonsense, or a stroke of genius! You solicitor said: "it must not be subject to a lease of an unexpired term of 21 years". How about this:

1) Don't purchase the freehold of the garden, purchase the leasehold for let's say 22 years for £39,999. This escapes the 3% SDLT charge as it's under £40,000.

2) At the same time, take a year's Option to buy the freehold for say £8,001 (totally the £48,000 current purchase price).

3) As soon as the solicitor will let you do it, exercise the Option to buy the freehold and remove the lease.

Now the rub is this: (A) you've got to convince the seller to jump through these hoops too, and what's in it for him? You could probably grease his palm with a bit more cash to persuade him. And (B) there's extra legals to do for the 2 transactions, which will come at a cost.

As you're trying to save 3% of £48,000 = £1,440 in tax, I fear that you would incur about that if not more to follow the approach above.

Unfortunately I think you'll just have to cough up and curse the people who wrote the legislation for not putting a relief in for people wanting to extend the garden of their only residence.

Reply to the comment left by "Jane Abbott" at "10/05/2017 - 16:53":

Hi Jane interested to see your solicitor's advice. My only comment (and tax is not my specialism) is that if the property is to be incorporated into your garden then you do not own ANOTHER dwelling at the end of the day of completion. The SDLT Manual https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09520 says:

"Land that is, or is to be, [NOTE FUTURE TENSE] occupied or enjoyed with the dwelling, such as a garden or grounds (including any building or structure on such land), is taken to be part of the dwelling."

My argument would be that if it is "taken to be part of the dwelling" (note the definite article), then it is taken to be part of the only dwelling you own so that at the end of the day of purchase you own one dwelling.

They rely on what I had quoted in my previous post.

The tone of the reply suggests that the solicitor is not specialist and has just discovered the part of the Act previously quoted, so I would push back.

For example if the land is considered to be part of you principal residence ('the dwelling') then how can the purchase be of a dwelling at all unless they suggest that you are purchasing a dwelling that you already own?

That is to say, you are not purchasing a dwelling.

You could also point them to this document I found from another firm, which seems to contradict them:

http://www.campionssolicitors.co.uk/wp-content/uploads/2017/04/SDLT_Higher_rates_for_additional_properties.pdf

"2.6 The gardens and grounds of the dwelling or land that is to be enjoyed with the dwelling (including buildings), for example, a detached garage, are taken to be part of the dwelling, but a transaction in such a building or land without the purchase of the actual dwelling will not be liable to the higher rates.

Example 2

An individual buys a plot of garden land from their neighbour. The purchase does not include an interest in one or more dwellings. The higher rates will not apply."

Fantastic - thank you for all the replies. I will go back to the solicitor and let you know how we get on.

Thanks again. Jane

Reply to the comment left by "Romain Garcin" at "10/05/2017 - 20:46":

I agree with your analysis Romain but please have some sympathy for the conveyancing solicitor, who is not a tax expert, erring on the side of caution. The legislation is anything but straightforward and if he gets it wrong and advises his client to submit an SDLT application that turns out to be incorrect and to pay no tax, he faces a claim by his client for the penalties and interest HMRC will charge. He may also face disciplinary action from the SRA for having advised his client to commit a criminal offence! Jane won't want to spend much money to solve a £1440 problem.

I think Campions are correct but they do not cite authority for the statement that "a transaction in such a building or land without the purchase of the actual dwelling will not be liable to the higher rates".

Good luck Jane

Hi

Quick update on the issue I was seeking advice on. We contacted the Inland Revenue SDLT Helpline and the gentleman we spoke to advised us that as the land we are purchasing does not have any form of residential property (eg a house or a flat) on it and the purchase price is under £150,000 we would not be liable for SDLT, even though we do already own one residential property.

He advised us to complete the SDLT Calculator to double check this. Having completed the calculator and looked at the definitions of residential property verses non residential property on the HMRC website, our solicitor has agreed that we should not have to pay.

Thanks for all the advice, very much appreciated.

Jane

Reply to the comment left by "Jane Abbott" at "12/06/2017 - 14:25":

Result!

Thanks for the update, Jane.