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Reducing the impact of Stamp Duty Land Tax (SDLT)

January 19, 2016

By Louise Misiewicz

Are you looking to buy multiple properties as an investment?

Have you worked out that you will pay a lot of SDLT?

Please note for the purposes of this article I have ignored the 2015 budget announcement regarding 3% additional SDLT. This is covered in another article.

The problem — Stamp Duty Land Tax (SDLT) killing your ROI

As an investor you may be looking to buy additional properties as an investment. As you may have read in my earlier article, you may need to pay SDLT and the amount of this will vary depending on the value of the property.

I am not going to go into detail here about how much SDLT is charged on one residential property as this was covered in my previous article, so instead let’s look at what happens  when you buy multiple properties.

Let’s say that you buy three properties at £100,000 from the same person or company. You may assume that each house falls under the current SDLT threshold and that therefore no SDLT is payable. Sadly, as these are linked transactions being transferred then SDLT is calculated by adding together the multiple transactions and then using that figure to calculate the amount due.  As the value of the three properties is £300,000 you would be expected to pay SDLT as follows:

– £300,000 acquisition of properties
– £125,000 exempt amount for SDLT purposes
– £175,000 at 1%
– £1,750 SDLT

SDLT relief: Averaging

This is a relief whereby you can take the total value of the property portfolio, if it is less than six residential properties, and buy them as an individual or put them into a limited company.

So, if you buy three properties at £100,000, then the average of each house would be £100,000. Therefore no SDLT will apply using the rates shown in my previous article.

There is one caveat. There is a minimum fee of 1% SDLT to be applied when using averaging on the entire amount.

Example: The freehold of a new block of 20 flats is purchased for £2.5 million. The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling. The chargeable consideration divided by the number of dwellings is £125,000. This is equivalent to 0% SDLT threshold but the minimum rate of tax under the relief is 1%.

The tax due is therefore 1% of £2.5 million = £25,000.

Averaging relief will not be allowed if:

– The properties are not dwellings, as in properties that are lived in by people;
– The properties are commercial properties; or
– You transfer a freehold reversion or head lease where a dwelling has a long lease of 21 years or more.

ATED relief – rented properties

It was suggested that properties valued over £500,000 would be subject to Annual Tax on Enveloped Dwellings (ATED) when you buy a residential property into a limited company. This does not apply provided that the property is rented out. You will need to complete a form Annual Tax on Enveloped Dwellings (ATED): Relief Declaration Return  to let HMRC know that the property is rented and that ATED should not be applied.

Next steps — how to implement this strategy

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.

 



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk