This document discusses the definitions of residential property for capital gains tax (CGT) and stamp duty land tax (SDLT) purposes in the UK. For CGT, residential property includes land that has included a dwelling or is being constructed as a dwelling. A dwelling is a building used or suitable for use as living accommodation. For SDLT, residential property is a building suitable for use as a dwelling, or being constructed as such, along with associated land. Both taxes consider a dwelling to be a standalone residential unit providing living facilities, though the definitions vary slightly between the taxes. The varying definitions can unintentionally cause transactions to be treated differently for tax purposes.

1. CHANGES TO THE TAXATION OF
RESIDENTIAL REAL ESTATE
What is Residential Property?

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An overview of the various definitions of 'Residential Property'
in UK Tax Legislation
Background
A difficulty in this area is that various taxes employ somewhat different definitions of what is 'residential' real estate and what
is 'non residential' (commercial property).
This note considers the capital gains tax (CGT) on residential property and stamp duty land tax (SDLT) definitions of
residential property. However, there are also definitions in the VAT legislation and in guidance from HMRC which may need to
be considered on specific transactions.
Capital Gains Tax on residential property
Residential property
An interest in UK land is a UK residential property interest if:
• the land has at any time in the relevant ownership period consisted of or included a dwelling, or the interest subsists for
the benefit of land that has at any time in the relevant ownership period consisted of or included a dwelling; or
• the interest in UK land subsists under a contract for an off-plan purchase of land consisting of, or including, a building or
part of a building that is to be constructed or adapted for use as a dwelling
Dwelling
A building counts as a dwelling at any time when:
• it is used or suitable for use as a dwelling; or
• it is in the process of being constructed or adapted for use as such
Exclusions
• (broadly) a building used for communal use
• Purpose built student accommodation
Damage to dwelling
• For CGT purposes, a building is treated as temporarily unsuitable for use as a dwelling if:
• The building was unsuitable for use as a dwelling for at least 90 consecutive days ending at or before the end of the
relevant ownership period
• The damage was accidental or beyond the control of the non-resident.
Stamp Duty Land Tax on residential property
Residential property is:
• a building suitable for use as a dwelling (or is in the process of being constructed or adapted for such use); and
• land that forms part of the grounds of such a building.
Non residential property is defined as: anything that is not residential.
In this instance buildings used for communal use will (broadly) be used as a dwelling. Actual use will override suitability for
use.
In certain circumstances transactions involving multiple dwellings will be treated as non-residential transactions

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'Dwelling'
As can be seen from the use of "dwelling" in respect of CGT and SDLT provisions, there is no statutory definition of dwelling:
therefore, the term takes its ordinary dictionary meaning.
Based on that – and on case law and HMRC guidance in a number of areas - a "dwelling" is broadly viewed as being a
standalone residential unit which has all the necessary attributes of a permanent place to live.
HMRC guidance (in respect of capital allowances but helpful more broadly) states that a "dwelling house is a building, or a
part of a building; its distinctive characteristic is its ability to afford to those who use it the facilities required for day-to-day
private domestic existence." This is considered to include cluster flats or houses in multiple occupation.
HMRC consider this to be a factual, and normally straightforward, test.
One area which demonstrates how the treatment can vary between the different taxes is in relation to bare land/land where a
building is in the process of being constructed:
• For CGT purposes land which is purchased off-plan (for residential purposes) can still be within the CGT charge
regardless of the fact that the land is undeveloped. However, where the building is completely demolished the dwelling
will be treated as ceasing to exist. If works are being carried out on a dwelling to convert it to commercial use, the
property may still be considered a dwelling unless planning permission for the commercial use is in place.
• For SDLT purposes, the land must be in the process of construction. This is a complex test which involves considering
what level of construction has been reached. One potential area of debate is whether land being sold with residential
planning permission is within the residential SDLT rates or if the fact that construction has not yet started is sufficient to
justify the land falling within commercial rates.
How might this affect me?
As can be seen from the consideration of CGT and SDLT provisions the various taxes have slightly varying definitions. This
can lead to transactions falling in/out residential treatment unintentionally which can have significant tax implications. A
couple of the potential traps for the unwary are set out in this note but the analysis of whether land is considered residential or
commercial for tax purposes will need to be carried out on a transaction by transaction basis.
For further information on any of the above, or for a discussion of how these changes might be relevant to you,
please contact one of the members of the Addleshaw Goddard Commercial Tax Team below.
Peter Sayer
Partner
020 7880 5792
Christopher Connors
Associate
020 7160 3622
Elspeth Van Den Brande
Associate
020 7160 3158

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