Stamp Duty Land Tax and Multiple Dwellings Relief
Stamp Duty Land Tax and Multiple Dwellings Relief
This article sets out the main details relating to the Stamp Duty Land Tax (SDLT) regime which applies when a person acquires more than one “dwelling” at a time. (Here, “dwelling” means residential property but excludes hotels, care homes and similar).
The relief applies SDLT at the rate appropriate to the ‘average property price’ when buying multiple properties, and will be of particular interest to someone who is considering buying a ‘bundle’ of residential properties together – typically several units out of a block of flats, or houses in a development.
The relief was introduced in the 2011 Budget and, generally, applies to property transactions completed on or after 19 July 2011. The stated policy objective is to remove a barrier to investment in residential property. And in many cases it should help.
What problem does the relief address?
SDLT is a ‘stepped’ tax: the rate increases – on the whole of the purchase price – at certain thresholds:
Consideration (Residential Property) Rate Applicable to Total Price
* Newly announced Budget 2012; Disadvantaged Areas Relief ignored.
Using the above table, a single property acquired for £120,000 costs no SDLT but a property bought for £300,000 costs £9,000 in SDLT – i.e., 3% of the full price.
Before this relief, property investors were put off buying more than one property as a single lot because of the cumulative effect of SDLT, which could push the entire transaction cost into higher rates. The relief works by calculating the rate of SDLT by reference to the average property price, rather than the total consideration. That rate is then applied to the total consideration as before – but the benefit is that the rate can potentially be much lower when the relief is claimed.
Note however that the minimum rate under Multiple Dwellings Relief is 1%, so care is required if considering ‘bulk purchases’ which include one or more properties individually worth £125,000 or less.
Example - how the relief helps
Mark wants to buy some city-centre flats which are being offered at a significant discount for bulk purchases. Four standard flats cost £200,000 each but the penthouse would be a further £300,000, totalling £1,100,000.
Without claiming Multiple Dwellings Relief, Mark would have to pay 5% SDLT on the full purchase price - £55,000. But if Mark claims the relief, he pays only 1% SDLT as the average purchase price is just £220,000. Mark’s SDLT bill will fall to 1% of the total purchase price – only £11,000 – thereby saving him £44,000 in SDLT.
Relief is still available if the properties have not yet been built at the time of purchase. This is welcome but prospective buyers should take care in case the project subsequently changes: there is a probationary or ‘clawback’ period in operation to prevent abuse.
Beware the clawback period
It is perhaps understandable that the legislation contains rules effectively to withdraw relief (fully or in part) where either the number of properties is reduced, or a property’s eligibility as a qualifying dwelling ceases, or both.
This is most likely to be encountered where off-plan building or conversion work changes course – say a project to build 8 small apartments is revised to complete 4 larger duplex apartments – but buyers claiming the relief should also appreciate that the clawback provisions can ‘bite’ even after they have taken over the properties.
The clawback period expires on the earlier of:
• 3 years from the “effective date” of the original transaction and
So if a buyer, who has claimed the relief, sells one of the relevant properties to an independent builder 18 months later, relief is not clawed back if that builder (for instance) then converts the property into a hotel. But relief would be clawed back if the buyer retained ownership and contracted a builder to convert the property into a hotel, within 3 years of the original purchase.
If the clawback provisions are triggered, the purchaser is required effectively to revisit the original relief calculation and to substitute the new, reduced number of eligible dwellings (if any) for the original figure in the calculation. If the increased average consideration falls into a higher SDLT rate band so that more tax is due, then it must be paid over, along with a revised return, no later than 30 days after the event which triggered the clawback.
Unfortunately, the clawback provisions don’t apply if the number of dwellings increases!
General residential property which can be occupied as a dwelling will ‘count’ for the purposes of the relief, whereas property used as (for instance) a residential home, hospice, hotel or similar establishment will not be eligible.
Residential property which is subject to a lease of more than 21 years (when the lease was originally drawn up) will basically not ‘count’ as a dwelling for the purposes of the relief.
This means that if someone acquires a block of ten flats, four of which are in the course of 99-year leases and the remaining six of which are either untenanted or on assured shorthold tenancy agreements, then six properties will ‘count’ towards Multiple Dwellings Relief.
Where the total purchase price relates to both eligible and ineligible property, then the consideration is to be apportioned on a ‘just and reasonable basis’. This could for instance apply to a building with flats over a shop, a large estate where some of the property is used as farmland and is not part of the dwellings, or a block of flats with only some properties being eligible as some of the flats are on a long lease. But note that the commercial value of untenanted properties may well be higher than those already subject to a lease.
Points to note
Remember that Multiple Dwellings Relief is not granted automatically but must be claimed, using ‘Code 33’ on the Land Transaction Return.
With a minimum 1% SDLT rate under this relief, it’s potentially not beneficial to claim the relief for lower-value properties – or to buy them ‘in bulk’ in the first place. (Properties individually worth £125,000 or less carry 0% SDLT – if bought separately). Disadvantaged Areas Relief cannot be used in conjunction with Multiple Dwellings Relief, although the former is due to be withdrawn on 6 April 2013.
Although the Budget 2012 legislation is still under review, the proposed higher SDLT rates potentially mean there may now be greater incentive to buy more than one eligible residential property together, particularly where a single property trips one of the higher thresholds but cheaper properties will bring the average price down to a lower SDLT rate. (Note that the rules for ‘linked’ purchases generally require the arrangements to be between the same vendor and buyer!)
Practical Tip :
It should be noted that, as currently drafted, the highest proposed rate of 15% will still apply to any single property worth £2 million or more – it cannot be ‘averaged out’ as part of a multiple property purchase.