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Stamp duty land tax (SDLT) is potentially chargeable whenever a transaction involving land takes place, however effected, unless there is a relief or exemption. SDLT is no longer relevant for sales of land in Scotland – replaced by the Land and Buildings Transaction Tax.

Where chargeable, SDLT is levied such that the percentage rate used applies only to the amount that falls within each band – in a similar way as the charge to income tax. The first £125,000 is currently charged at nil rate, except for Buy To Let and second homes for which the rate is 3% (but no SDLT is payable if such a property costs less than £40,000).

Where several properties are bought at the same time, the SDLT is calculated as if one dwelling had been purchased, i.e. by reference to the total consideration.

‘Multiple dwellings relief’ (MDR) allows a rate to be charged at the percentage payable on the ‘average value’ price (referred to as the ‘Average Value SDLT’ (AVSDLT) should more than one property be purchased at one time, rather than on the total consideration. MDR is only available for residential transactions.

If the relief is claimed, the total SDLT is computed as follows:

1. Calculate the ‘AVSDLT’, i.e. total dwellings consideration/total number of dwellings.
2. Multiply the resultant figure by the total number of dwellings.

The answer is the total SDLT liability.

NOTE: The SDLT must be at least equal to 1% x total dwellings consideration.

Multiple Dwellings Relief (1)
In a purchase of six or more dwellings it might be better not to make an MDR claim but instead classify the transaction as a commercial purchase.

For example, 6 buildings cost £7 million.

As a commercial purchase the SDLT would be £339,500 (£150,000 @ 0% + £100,000 @ 2% + £6,750,000 @ 5%).

Under a MDR claim the SDLT would be £286,998 ((£150,000 @ 0% + £100,000 @ 2% + £916,666 @ 5%) x 6).
 
Multiple Dwellings Relief (2)
Ben wants to buy flats being offered at a significant discount for bulk purchase. Four flats will cost £200,000 each plus a penthouse flat at £300,000. Commercial rates do not apply as less than 6 properties have been purchased.

Without claiming MDR the SDLT charge (Buy to Let rates) would be calculated on the full purchase price for each individual property as follows:

On each flat: £7,500 (£125,000 @ 3% + £75,000 @ 5%)

On penthouse: £14,000 (£125,000 @ 3%) + (£125,000 @ 5%) + (£125,000 @ 8%) Total charge = £44,000.

With claiming MDR:

1. Average value = £1.1m/5 = £220,000
2. AVSDLT =    £125,000 @ 3%

                          £95,000 @ 5%
Total charge = £8,500 x 5 dwellings = £42,500.

   3. SDLT must at least be equal to 1% x total dwellings consideration.   

       £1.1m @ 1% = £11,000.

Thus, by claiming MDR there is a SDLT saving of £1,500 (£44,000 - £42,500).

This is a sample tip taken from our 165 page guide:

101 Tax Tips For Landlords 2016/17