stamp duty land tax
New relief for multiple residential purchases
6 September 2011
What’s changing?
A new stamp duty land tax (SDLT) relief has recently been
introduced for multiple acquisitions of residential properties.
While it doesn’t provide a full SDLT exemption, it could
significantly reduce the amount of SDLT payable on multiple and
bulk residential purchases.
When does it start?
It can apply to transactions with an SDLT effective date on or
after 19 July 2011. This new relief was part of the 2011 Budget,
and has now come into force following Royal Assent to the 2011
Finance Act. The details of the relief will be set out in a new
Schedule 6B to the Finance Act 2003.
How does the relief work?
This new relief works (broadly speaking) by using the average
consideration of the multiple residential properties being acquired
to set the rate of SDLT for those residential properties. Compare
that to the previous position where a bulk residential purchaser
would have had to use the aggregate consideration of the properties
to set the rate of SDLT, either as a single transaction or under
the linked transaction rules. So this new relief could
significantly reduce the overall amount of SDLT payable on multiple
residential purchases.
This new relief can apply to multiple purchases of dwellings
under one transaction, or to a number of linked transactions where
more than one of the transactions involves acquiring a dwelling. It
does not apply to SDLT on rents on grant of a lease. Also, under
this new set of rules, the relief cannot take you down to a 0% rate
of SDLT.
Example
Four separate residential freehold properties are purchased by
the same buyer at the same time for £800,000 in aggregate; average
consideration is £200,000 per property; so the applicable rate of
SDLT under these new rules is 1%; SDLT due is 1% x £800,000 =
£8,000. Compare that to the previous position under the normal
linked transaction rules, where the SDLT rate would have been set
by the aggregate consideration of £800,000, so giving an SDLT rate
of 4%.
What if I acquire property subject to a lease or
leases?
This new relief won’t apply to the extent that the residential
freehold or superior leasehold which is being bought is subject to
leases or underleases of 21 years or more. If you are buying a
property which is only partly subject to leases of 21 years or
more, you will need to apportion the overall purchase price to
determine to what extent the relief can apply. Any apportionment
must be on a just and reasonable basis.
Example
The freehold of a block of 10 flats is purchased for £1.4
million. Five of the flats are let out already on 99 year leases,
while five of them are untenanted. All of the flats are
residential. The consideration is apportioned as to £1,250,000 for
the five untenanted flats, and £150,000 for the 5 tenanted
flats. The relief can apply to the untenanted flats; average
purchase price £250,000; this gives an SDLT rate of 1%; SDLT due is
1% x £1,250,000 = £12,500.
The amount ascribed to the tenanted flats won’t qualify for this
new relief, as they are already let out on leases of more than 21
years, and so the rate of SDLT applying to them is set by the
overall purchase price of £1.4 million. As the whole transaction
involves six or more dwellings, it’s treated as involving
non-residential property (under existing SDLT rules) and so the
rate of SDLT on the tenanted flats is 4%; SDLT due is 4% x £150,000
= £6000.
What if I acquire a mixture of residential and non
residential properties?
Broadly speaking, you can only apply this new relief to the
proportion of the consideration applicable to the residential
properties. Any apportionment must be just and reasonable.
Can this relief apply to uncompleted
buildings?
Yes, subject to checking the details of the new legislation. The
new relief can apply where there is a contract to purchase a
building which is to be constructed or adapted under the contract
for use as a dwelling(s), and where the construction or adaption
hasn’t commenced by the time that contract is substantially
performed for SDLT purposes.
How to obtain the relief?
It must be claimed via the relevant SDLT return. At present,
HMRC are saying that code 28 (Other Relief) should be used when
claiming the relief in the return, although they say that a special
relief code will probably be introduced later.
Later adjustments – possible additional
SDLT
Unfortunately, once you have successfully claimed relief on your
multiple residential acquisitions, that may not be the end of the
story. You may have to file a further SDLT return and pay
additional SDLT if (broadly speaking) within three years from
date of acquisition an event occurs which, if it had occurred
immediately before the original purchase would have meant that the
relief would not have been available (or that less relief would
have been available). For example, such later events could
include:
- the property no longer containing any dwellings; or
- the number of dwellings included in the property being reduced
(e.g. by combining smaller dwellings into larger ones).
So bulk residential buyers must keep a careful eye going forward
on any properties where they claim the relief.
Where can I find out further details?
We have only covered some of the main highlights of this new
relief and the details should be checked carefully before claiming
it. HMRC has published guidance on the details of the relief, which
is available on its website via
the 'SDLT: relief for transfers involving multiple dwellings'
link.
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.