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John Feaster, author of Stamp Duty Land Tax: A Practical Guide, reviews the topical subject of Multiple Dwellings Relief for Stamp Duty Land Tax.

Introduction

As an encouragement to investment in residential property, a new method of calculating SDLT on purchases of multiple dwellings has been introduced. 

The rate of SDLT which applies to the consideration provided for the acquisition of multiple dwellings will now be determined by reference to the mean consideration attributable to the dwellings (i.e., the total amount of the consideration divided by the number of dwellings) rather than the aggregate value of the dwellings. 

The Relief

The new method of charge is given effect by virtue of a relief, which must be claimed in a land transaction return. The relief is subject to a minimum rate of one per cent.

Example

Bob buys the freehold of a block of seven un-tenanted flats for £1.75m. The rate of tax is set by the total amount of the consideration divided by the number of dwellings i.e. £1.75m/ 7 = £250,000. 

Consideration of £250,000 attracts a rate of charge of one per cent. The SDLT payable is therefore £17,500 (i.e. one per cent of £1.75m). This compares to the previous method which would have determined the rate of charge at four per cent, giving rise to SDLT of £70,000 (the four per cent rate would have applied as the transaction involves six or more dwellings, and is therefore treated as involving non-residential property).

Relevant Transaction

The relief applies to vacant or let properties which form part of a relevant transaction:

1. the main subject matter of which includes interests in at least two dwellings; or
2. which is one of a number of linked transactions, the main subject matter of which includes an interest in a dwelling, and the main subject matter of at least one of the other linked transactions includes an interest in a dwelling.

A relevant transaction includes a superior interest (freehold or leasehold) over property which includes dwellings.  However, the purchase of a freehold or leasehold interest in a dwelling subject to a long lease of 21 years or more will not be included as a relevant transaction for the purposes of the relief. 

Apportionment

Consideration must be apportioned on a just and reasonable basis between the consideration attributable to dwellings qualifying for the relief, and the remainder. The rate of SDLT which applies to consideration attributable to interests in land other than dwellings, if any, is the rate which would apply in the absence of the relief.

Example (continued)

If four of the flats which Bob acquired (in the example above) are tenanted under leases which exceeded 21 years when granted, the consideration must be apportioned between the dwellings which qualify for the relief, and those which do not.

For the purposes of the example the chargeable consideration is apportioned (on a just and reasonable basis) to the three untenanted dwellings as £1m, and £750k for the four tenanted dwellings. 

The three untenanted dwellings qualify as a transaction involving multiple dwellings therefore the rate of tax chargeable is three per cent (£1m/3 = £333,333), resulting in SDLT of £30,000. 

The four tenanted dwellings are chargeable to tax at four per cent, also giving rise to SDLT of £30,000 (£750,000 at four per cent).

Total tax of £60,000 is therefore due.

The relief includes provision for “off-plan” purchases where construction or adapation of property for residential use may not have commenced by the effective date of the transaction. 

Adjustment / Clawback of Relief

The tax calculation may subsequently be adjusted (by way of relief being clawed back) if the number of dwellings involved is reduced or residential use ceases within three years of the effective date of the transaction. If additional tax becomes payable, a further return must be made by way of letter to the Birmingham Stamp Office, together with payment of the tax due.

Summary

The new relief has been broadly welcomed by the property sector, and it is hoped that the relief will stimulate investment in the residential property market. Care must be taken to ensure compliance with the new legislation, and to make a correct claim for relief on a land transaction return when the conditions are satisfied.