An article relevant to the tax year 2020/21
In this article, we will answer the following questions from landlords about reducing Stamp Duty Land Tax when buying multiple properties as a linked transaction.
You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.
We have written an article that shows what Stamp Duty Land Tax is and how it is calculated. You may wish to calculate and save the SDLT liability. We have created a modestly priced spreadsheet for you to do this. Go ahead and buy the SDLT calculator for just £9.95
Flats above shops or have a residential dwelling with offices
We have recently written an article where you can use the Multiple Dwellings Relief, as shown in this article, whilst removing of the 3% SDLT additional rate. This is relevant where you buy multiple residential properties that also has a commercial element. This means you do not pay the 3% SDLT rate when claiming MDR.
What does Multiple Dwellings Relief mean (Linked Transactions)?
Multiple Dwellings Relief is an opportunity to reduce Stamp Duty Land Tax when buying a residential buy to let properties. In order for you to claim a discount, you need to purchase two or more properties form the same vendor. This is commonly known as a linked transaction. There is a linked transaction as a there are multiple land transactions taking place with the same buyer/seller.
HMRC defines a linked transaction “When 2 or more property transactions involve the same buyer and seller, they count as ‘linked’ for SDLT. HMRC may count people connected to a buyer or seller as being the same buyer or seller”.
HM Revenue Customs counts transactions as linked if:
- there’s more than one transaction
- the transactions are between the same buyer and seller or between people connected with either of them
- the transactions are part of a single arrangement or scheme or part of a series of transactions
How can Multiple Dwellings Relief be claimed?
You would need to speak with the conveyance solicitor and highlight to them that you have a linked transaction and that you wish to claim Multiple Dwellings Relief on the Linked Transaction. They would then draw up the conveyance documents in the same way but would calculate the Stamp Duty Land Tax based on the fact that you have a Linked Transaction.
How is Multiple Dwellings Relief claimed and how does it reduce Stamp Duty Land Tax?
Example 1 of claiming MDR to reduce SDLT
The freehold of a new block of 20 flats is purchased for £2.5 million. There is no head lease and none of the flats is subject to a long lease.
The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling. For instance, a property that contains 20 flats. The freehold is treated as if it were interested in the individual dwellings. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 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.
If you want to know more then please read our “buy to let tax tips for UK landlords” article
Example of buying properties without claiming Multiple Dwellings Relief
A buyer identified a landlord that wishes to sell his portfolio. The seller offers six units in total in his portfolio. Two properties have a value of £600,000 each and a further four units £50,000 each.
A £600,000 property would have a Stamp Duty land Tax charge of:
£18,000 SDLT scaled rates
£20,000 3% SDLT higher rate
£38,000 total Stamp Duty Land Tax charge
The two £600,000 would have a Stamp Duty Land Tax charge of £76000 (£38,000 X 2).
A £50,000 property would have the following Stamp Duty Land Tax liability:
£0 SDLT banded rates
£1,500 3% SDLT higher rate
£1,500 total SDLT charge on a £50,000 property
The four £50,000 would have a total Stamp Duty Land Tax charge of £6,000. The total Stamp Duty Land Tax charge on the six properties would be £82,000
The same example of buying properties – Now claim Multiple Dwellings Relief
There is clearly a linked truncation with the above example. We can now use the Multiple Dwellings Relief (MDR) to reduce the Stamp Duty Land Tax charge as follows:
£1,200,000 – 2 X £600,000 properties
£200,000 – 4 X £50,000
£1,400,000 total value of the properties
The average value of the properties is now £233,333 (£1.4m divided by 6 properties). Stamp Duty Land Tax will be applied to the average value as follows:
£0 – 0% X from £0 to £125,000
£2,167 – 2% X from £125,001 to £233,333
X 6 units
£13,000 is the total Stamp Duty Land Tax banded rates
We now have to add in the 3% Stamp Duty Land Tax higher rate of £42,000 (£1.4m X 3%). The total Stamp Duty Land Tax charge is:
£13,000 SDLT banded rates
£42,000 3% SDLT higher rates
£55,000 total Stamp Duty Land Tax charge when buying multiple properties with a value of £1.4m. However, we need to take into accounts that HMRC demands a minimum
1% of the portfolio value plus
3% SDLT higher rate if the properties are residential
4% minimum charge on the value
As such the actual Stamp Duty Land Tax charge is £56,000 (£1.4m X 4%) as this is the minimum tax liability. This is still a significant saving compared to the £82,000 Stamp Duty Land Tax liability previously calculated.
The same example of buying properties – Now claim non-residential rates of SDLT
As 6 buy to let properties are purchased the SDLT rates could be classed as non-residential rates rather than residential. This means that there is no 3% SDLT surcharge. More to the point the total value of the properties would be £1,400,000. The non-residential rates of SDLT on £1.4m at the time of writing is £59,500