Usually not. A house-building company can claim relief from SDLT on a home it takes in part exchange. The buyer must have lived there as their main home in the last two years, must be buying the new home to live in, and the grounds must fit the permitted area. Miss the relief and company rates apply.
Key facts
- A house-building company's purchase of a buyer's old home can be exempt from SDLT under paragraph 1 of Schedule 6A to the Finance Act 2003[1][2].
- The buyer must have lived in the old home as their only or main residence at some time in the two years before the purchase[1].
- The land taken must be within the permitted area, normally 0.5 of a hectare including the site of the house[3].
- Without relief, a company buying a dwelling pays the higher rates, starting at 5% up to £125,000[4].
- Reselling a part-exchange home is normally exempt from VAT, so VAT on its resale costs is exempt input tax[5][6].
What is part-exchange relief?
When a buyer trades their old home in against a new one, there are two land transactions. HMRC treats an exchange as two separate transactions[7]. The buyer buys the new home. The housebuilder buys the old one.
That second purchase is a company buying a dwelling, and SDLT follows. Paragraph 1 of Schedule 6A to the Finance Act 2003 exempts it if the conditions are met[1][2].
A house-building company is one that constructs or adapts buildings for use as dwellings, and HMRC's guidance applies the rules to connected companies too[3]. Our guide to SDLT for property developers covers the rest of a developer's SDLT.
Which conditions does the buyer have to meet?
Three, all about the individual[1]:
- They occupied the old home as their only or main residence at some time in the two years before the purchase
- They're buying a new dwelling from the house-building company
- They intend to live in the new dwelling as their only or main residence
Two more sit with the deal. Each acquisition must be made in consideration of the other, and the land the company takes must not exceed the permitted area[1]. The individuals must be both the seller of the old home and the buyer of the new one[3].
So a buyer trading in a buy-to-let they never lived in won't qualify. Nor will one buying the new home as an investment.
What if the old home sits in large grounds?
The permitted area is 0.5 of a hectare including the site of the house, or a larger area where that's needed for reasonable enjoyment of the dwelling[3]. HMRC's guidance says stables and a paddock aren't necessarily part of that[3].
Bigger grounds don't lose the relief entirely. Partial relief is available where the other conditions are met[3]. In HMRC's guidance on the trader version, the taxable part is the difference between the market value of the permitted area and the market value of the whole property[8].
What does it cost if the relief is missed?
A company buying a dwelling for £40,000 or more pays the higher rates[4]. For purchases from 1 April 2025, which is still the table for 2026/27, they start at 5% up to £125,000 and 7% from £125,001 to £250,000[4].
On a £205,000 part-exchange home, that's £11,850. Take eight across a site and it's £94,800 of SDLT the relief would have removed. The claim goes on the SDLT return with relief code 08[9].
What changes if a separate trader takes the old home?
Some housebuilders pass part exchanges to a separate trader. That trader can claim a similar relief under paragraph 2 of Schedule 6A, but it comes with conditions that can take it away[8].
HMRC's guidance says the trader's relief is withdrawn if it spends more than the permitted amount on refurbishment, grants a lease or licence, or lets its principals, employees or connected people live there[8]. The permitted amount is the greater of £10,000 or 5% of the price, capped at £20,000[3]. A lease or licence of up to six months to the seller doesn't count[8].
So a trader that recarpets, redecorates and lets the house while it's on the market can lose the relief it claimed.
What VAT applies when the part-exchange home is sold on?
The new home is zero-rated when the housebuilder sells it[5]. The old home is different. Supplies of land are normally exempt from VAT[5], and a second-hand house isn't one of the exceptions.
So the VAT at 20%[10] on refurbishing and marketing part-exchange homes is exempt input tax. It comes back only if the business passes the de minimis test: no more than £625 a month on average, and no more than half of all input tax[6].
A run of part exchanges can push a housebuilder over that line. Our guide to VAT partial exemption covers the methods.
An invented North West house-building company sells a new four-bedroom home for £325,000. It takes the buyer's semi in part exchange at £205,000 and the buyer pays £120,000 in cash. The buyer has lived in the semi for six years and is moving into the new home. The plot is well under 0.5 of a hectare.
SDLT on the part-exchange home
With relief: £0[1]
Without relief, at the higher rates: 5% of £125,000 = £6,250, plus 7% of £80,000 = £5,600. Total £11,850[4]
Eight part exchanges on a 60-plot site: £94,800
VAT on reselling the eight homes
Refurbishment: £6,000 a home plus £1,200 VAT
Agents' fees: £3,000 a home plus £600 VAT
Exempt input tax: £1,800 a home, £14,400 in total[6]
Spread over an 18-month sales period: £800 a month, above the £625 limit
The SDLT relief is worth far more than the VAT cost. But the VAT is real, and it belongs in the appraisal.
Part-exchange relief is one of the more generous SDLT reliefs, and most of the work is paperwork. The problems we see are about evidence, not law.
Get the buyer's residence history in writing at reservation, with dates. Check the grounds against the title plan. Decide which company takes the old home before the first part-exchange offer goes out, because the house-builder route and the trader route carry different conditions. Then put the VAT on resale costs into the appraisal.
Common questions
Does the buyer still pay SDLT on the new home?
Yes. An exchange is treated as two separate transactions[7], so the buyer's purchase of the new home is taxed in the normal way.
Can a buyer trade in a buy-to-let under this relief?
Only if they lived in it as their only or main residence at some time in the two years before the purchase[1].
Is there a price cap on the relief?
HMRC's guidance on the house-builder relief limits the land area, through the permitted area, rather than the price[3][1].
How is the relief claimed?
On the SDLT return for the part-exchange purchase, using relief code 08[9].
Sources
- HMRC Stamp Duty Land Tax Manual SDLTM21020: acquisition by house-building company from individual. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm21020
- Finance Act 2003, Schedule 6A. www.legislation.gov.uk/ukpga/2003/14/schedule/6A
- HMRC Stamp Duty Land Tax Manual SDLTM21010: certain acquisitions of residential property, definitions. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm21010
- GOV.UK: Higher rates of Stamp Duty Land Tax. www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property
- HMRC VAT Notice 742: land and property (paragraph 3.1). www.gov.uk/guidance/vat-on-land-and-property-notice-742
- HMRC Partial Exemption Guidance PE24500: de minimis. www.gov.uk/hmrc-internal-manuals/vat-partial-exemption-guidance/pe24500
- HMRC Stamp Duty Land Tax Manual SDLTM01410: exchanges. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm01410
- HMRC Stamp Duty Land Tax Manual SDLTM21030: acquisition by property trader from individual. www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm21030
- HMRC: guide for completing paper SDLT1 returns (relief codes). www.gov.uk/government/publications/sdlt-guide-for-completing-paper-sdlt1-return/guide-for-completing-paper-sdlt1-returns
- GOV.UK: VAT rates. www.gov.uk/vat-rates
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here. Please take advice before acting on anything above.