SDLT Relief

Stamp Duty Land Tax (SDLT):

SDLT Relief for Transfers Involving Multiple Dwellings

The new Finance (No.3) Act introduced by the 2011 Budget allows purchasers relief from Stamp Duty Land Tax (SDLT) for the purchase of two or more residential dwellings.

Currently the chargeable SDLT consideration is the sum total of all properties included within the transaction, . Therefore a portfolio of ten residential properties at an average value of £125,000.00 each means that the top rate of SDLT (now 5%) is payable on the value of each property.

Current example:

Under the current regime, the SDLT liability for the purchaser is calculated by reference to the total chargeable consideration, i.e. £1,250,000.00.  As the value of the properties is over £1m the tax is calculated at a rate of 5% of the total consideration which leads to a SDLT liability of £62,500.00.

Relief is claimed by averaging out the value of the properties in the portfolio.  This figure is then used to calculate the rate of SDLT to be applied. A minimum rate of 1% relief is used.

Example under the Bill:

Purchaser A is purchasing 10 properties at an average value of £125,000.00 each.

The SDLT liability is calculated by reference to the mean value of the properties, in this case £125,000.00.  Usually the SDLT liability for property at a value of £125,000 or less is nil, but as the relief operates subject to a minimum of 1% the SDLT liability here is £12,500.00.

Other potential scenarios under the new Bill:

A likely scenario is that if the number of units in an off plan purchase is reduced, but the total consideration remains the same, the average value of the properties will therefore increase and would affect the SDLT calculation.

In addition to this, if within three years of a purchase there are changes in the circumstances of the land then the amount payable to HMRC could change.  For example, if residential properties were purchased but steps were taken to convert them into commercial use within three years the relief would no longer apply and SDLT would be payable in the normal way.

The draft guidance also sets out examples of amongst other things:

• How the relief operates in relation to transactions that include a Freehold or Leasehold subject to long Leases;
• How the adjustment provisions that would require further SDLT return and payment of tax should the circumstances of the transaction change within three years of completion would work;
• How the relief applies to a building or part of a building which is suitable for use as a single dwelling or which is in the process of being constructed or adapted for such use.

Royal Assent was given today (19th July 2011) although it should be noted that the guidance published by HMRC is currently only draft guidance and is subject to change. 

On 8th August 2011, HMRC added final form guidance on multiple dwellings relief to its SDLT Manual, which can be found on HMRC website. The guidance is substantively identical to the draft published on 20th May 2011

If you have any questions about SDLT in respect of Residential Property please contact Duncan McGregor

This article is for general guidance only and no action should be taken without specific legal advice.

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