Property Developers, Property Investors

Stamp Duty Land Tax – Multiple dwellings relief

simon

Simon Misiewicz

24th December 2018

Article relevant to the tax year 2018/19.

Can I claim multiple dwellings relief?

Can I reduce the rates of SDLT I am charged?

Download the spreadsheet to calculate Stamp Duty Land Tax (SDLT) on a new property – Click here

You will either pay residential rates or non residential rates for SDLT when buying or transferring between legal entities buildings or land.

There are reliefs to reduce SDLT If you are buying multiple dwellings in the same or linked transaction. A dwelling is a residential use property that is independently accessed and used from any other building(s).

Please see detailed notes from HMRC published Nov 16 here (5.12 in particular) to understand more.

Join our FREE tax webinar

What is multiple dwellings relief?

If more than 1 but less than 6 dwellings are bought in the same/linked transaction then you can calculate the average price of the properties and work out SDLT. This is described as the multiple dwellings relief.  See SDLT Manual 29940 and SDLT Manual 29905

If there are more than 5 properties in the transaction then you can either apply (so long as the value equates to at least 1% of the transaction value):

a) Multi dwellings relief
b) Commercial SDLT

In this instance it does not matter that all the properties may be residential.  Buying 6 or more properties in the same/linked transaction affords you the ability to use the commercial SDLT rates as a consequence of FA2003 s116 (7).

The buyer can choose whichever of the above provides them with the lowest SDLT charge.

The buyer will have to pay higher stamp duty within 30 days of commencing change If the number of units reduces within 3 years of purchase. For example by combining flats or making larger houses by connecting houses together. This is only the case if they have taken advantage of the multiple dwellings relief benefit at the original purchase.

Download your buy to let tax guide here, written by our property accountants

Example 1:

Six units costing £600,000 each for two and £50,000 each for four. The two properties at £600,000 would be £20,000 each total SDLT would be £40,000.

However, as 6 units are purchased the SDLT rates will be commercial 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.

You divide this value by the number of units being £233,333. The commercial SDLT charge would be just £1,667 for each property meaning a total SDLT bill of £10,000. There is a minimum charge of 1% of the total value of the property transaction and this on £1.4m is £14,000.

SDLT of £14k is significantly less than what would have been paid on a unit by unit basis.

3% SDLT surcharge and Multiple Dwellings Relief

Please do add in the 3% surcharge for residential properties if the following applies in accordance with FA 2016 S.128 Paragraphs 5 & 6

  • The purchaser is an individual
  • The consideration is for 2 or more properties
  • If conditions A, B and C applies:

Conditions:

A: Dwelling costs more than £40,000
B: Is not a lease and if a lease is no more than 21 years
C: is not subsidiary to any of the other purchased dwellings

  • Dwelling A is situated within the grounds of, or within the same building as, dwelling B, and
  • Chargeable consideration is 2/3rds of the overall consideration if:
    • Dwellin A
    • (ii) Dwelling B, and
    • (iii) Each of the other purchased dwellings (if any) which are situated within the grounds of, or within the same building as, dwelling B.

Example 2:

Mr Arnold buys a block of five flats for £195,000 under one freehold. On average the purchase price is therefore £39,000.

The person an individual and the first condition met.

The block is five flats, the second condition met.

The third condition does not apply because only one condition is met:

Conditions:

A: Dwelling cost more than £40,000 – This condition met
B: Is not a lease and if a lease is no more than 21 years – This condition is met because it is a freehold, not individual leases.
C: is not subsidiary to any of the other purchased dwellings. – The condition is not met as the five flats are part of the same block.

As such the 3% SDLT surcharge does not apply to the above example.

How can our property accountants help you reduce your buy to let tax?

Book a call to discuss our property accountancy services – Click the Consultation button at the top of the page.

Book a tax call with our property tax specialists using the code “Art25” to get 25% discount – Click the Consultation button at the top of the page.

Book a call to see how we can help you.