Advice on some of the pitfalls of land transactions
© Adobe Stock Good preparation is the watchword when selling land, and “buyer beware” is the catchphrase for purchasers.
The checklist for sellers is a long one, starting with advice from land agents, lawyers and accountants to allow at least a year to make sure all is in order before marketing.
This includes gathering all documents and making sure titles are correct, that any rights of way and easements are clear, planning permissions have been obtained and complied with, and that listed buildings, conservation areas and historic monuments issues are noted.
Sporting and mineral rights, chancel repair liabilities, drainage and pollution risks, grazing and any environmental agreements need to be considered, as well as making sure tenancies are in order.
See also: Stamp duty and farmland – how it works and what to expect
Sometimes what seems like a relatively small issue can hold up or even scupper a sale.
Septic tanks
In this regard, septic tanks continue to cause problems in property sales, for both buyers and sellers.
Non-compliant septic tanks can lead to months of delays and frustration, says Zoe Smith, of Stafford-based law firm ORJ.
“I have seen buyers pull out of deals at the eleventh hour after it emerged there was no Environment Agency permit in place,” says Zoe.
This can be because the buyer’s lender will not advance funds on a non-compliant tank, or because insurers will not offer cover.
“We’re finding lenders just won’t lend until the problem is resolved. We have seen cases recently where sales have fallen through as sellers haven’t given their systems due attention and they’ve been deemed non-compliant and in need of repair or replacing.
“When non-compliance is flagged, there is no quick fix. It can take about six months to rectify the problem and/or obtain the required permit.
“So, if you have a septic tank and are thinking about selling in the next year, seek professional advice and ensure you are acting within the law as early as you can to avoid any disruption.”
Further regulations were introduced in October 2023 concerning discharge methods and volumes for new septic tanks in England which use the same outlet as an existing discharge.
It is the seller’s responsibility to be truthful in answering pre-contract inquiries from conveyancers. These will include questions about the drainage and sewerage system. A routine building survey is likely to flag that there is a private system and recommend that the buyer does further investigation, says Zoe.
“From a buyer’s perspective, we would strongly recommend that a specialist survey is undertaken on the septic tank to ensure the system is in good working order and complies with the General Binding Rules and all regulations,” she says.
Septic tank rules
The rules on septic tanks vary between the countries of the UK.
In England, domestic septic tanks or small sewage treatment plants (also known as package treatment plants) must meet certain criteria known as the General Binding Rules. If they do not, they may need an Environment Agency permit.
More information on the requirements in each UK country:
Land registry delays
Long processing timescales at the Land Registry were an issue before the Covid-19 pandemic, but have become worse, say lawyers. This illustrates the importance of getting titles in order, including registering land for the first time.
Compulsory registration was introduced in December 1990 in England and Wales. More than 10% of land remains unregistered.
At the same time as the Land Registry is going “digital by default”, it is dealing with a heavy workload of applications.
First registrations and transfers of part of a title can take up to two years, says ORJ’s Zoe Smith, although in certain limited circumstances, for which evidence must be provided, they can be expedited.
Land Registry data show that it completes half of all applications to register land or property for the first time in about 16 months.
Almost all are completed in about 17 months, but a minority might take a few weeks longer depending on the application, it states.
It handles more than 300,000 changes to existing titles a month – for example, registering property transfers, updating charges (mortgages) against a property and changing names on a property.
Where preparatory work has been done, half of applications to divide existing titles or register a new lease are completed in about 13 months and almost all in about 20 months, says the Land Registry.
Where no preparatory work has been done, half are completed in about 16 months and almost all in about 19 months.
Stamp duty land tax misunderstandings
This year’s Budget did away with multiple dwellings relief, which was useful for buyers of several dwellings in a single transaction.
The relief reduced the stamp duty land tax (SDLT) bill in qualifying circumstances by allowing the values of the dwellings to be averaged.
While the relief is no longer available on new transactions, some opportunities to claim it have been missed in the past, but it is possible to rectify this, says Luke Cochrane, a director of accountant and adviser Land Family Business.
“A claim for multiple dwellings relief can be complex, and there are many variables to consider when making a claim,” he says.
“Fortunately, if a claim has been missed, or wrongly prepared, and the relevant conditions are met, it’s possible to submit a retrospective claim up to 12 months from the original filing date to reclaim any overpaid SDLT.”
This can be achieved by submitting an amended SDLT return to HMRC.
Luke gives the following example of how multiple dwellings relief can reduce the amount of SDLT payable on a purchase in one transaction from the same vendor, thereby linking them for SDLT purposes:
Property values:
- Farmhouse £1m
- Buildings £250,000
- Land £6.8m
- Cottage £300,000
- Total value £8.35m
As the transaction is for mixed property, the non-residential rates for SDLT (which, like other SDLT rates, are banded by value) can be applied to the whole transaction.
- First £150,000 of value levied at 0% = no charge
- £150,001 to £250,000 levied at 2% = £2,000
- £250,001 to £8.35m levied at 5% = £405,000
- Total SDLT bill £407,000
However, if a hybrid calculation is used, applying residential rates including multiple dwellings relief to the residential properties, along with the non-residential rates to the remaining land and buildings, the SDLT bill is reduced by more than £23,000.
For example, the total value of the farmhouse and cottage of £1.3m give an average value of £650,000 for the dwellings.
The SDLT calculation in this instance is:
- First £250,000 of value levied at 0% = no charge
- £250,001 to £650,000 levied at 5% = £20,000
- This gives an SDLT charge of £40,000 for the two properties
(The multiple dwellings relief is subject to a minimum charge of 1% of the total dwelling value, which is £13,000)
Next comes the calculation for the non-residential element. This is charged as percentage of the total value (£7.05m divided by £8.35m x £407,000) to give an SDLT charge of £343,635.
Adding the £40,000 multiple dwellings relief SDLT charge to this gives a total SDLT bill on the transaction of £383,635 and an SDLT saving of £23,365.
Luke cautions that any SDLT payment requires careful consideration and that just because multiple dwellings relief is available, it may not necessarily produce the lowest SDLT charge.
What is stamp duty land tax?
This is a tax that generally must be paid by the purchaser when land or property worth more than £150,000 changes hands.
Stamp duty land tax (SDLT) is the name of the scheme in England and Northern Ireland, where it is overseen by HMRC.
Similar tax systems are used in Wales (land transaction tax) and Scotland (land and buildings transaction tax), but there are some key differences in terms of the rates and the timing of payments.