Peter Rayney reminds us to consider claiming available stamp duty land tax reliefs following the imposition of the 3% surcharge on dwellings.
Corporate transactions
Under the new 3% stamp duty land tax (SDLT) surcharge regime, companies will always pay the additional 3% when they acquire a major interest in a dwelling (see Part 1 of this article for relevant SDLT rates).
Under these rules, both companies and individuals are likely to incur substantial SDLT liabilities when acquiring residential properties. However, in the right circumstances, it may be possible to mitigate the SDLT costs.
Deemed non-residential treatment
There is an important SDLT ‘deeming’ rule, which applies to the transfer of six or more dwellings in a single transaction. Such transactions are collectively treated as ‘non-residential’ for SDLT purposes (FA 2003, s 116(7)), which are chargeable at lower SDLT rates, as shown below:
Chargeable consideration SDLT rate
Up to £150,000 0%
£150,001 to £250,000 2%
More than £250,000 5%
The maximum rate for ‘non-residential’ (commercial) property is 5%, which compares very favourably with the high SDLT rates for residential property. For example, where the consideration exceeds the £250,000 bracket, the ‘surcharge’ SDLT rates rise progressively from 8% to 15%.
However, it is likely that a better SDLT outcome will result from claiming multiple dwellings relief (MDR). In this context, it is important to note that the MDR legislation specifically ignores the deemed ‘non-residential’ rule for six or more dwellings (see FA 2003, Sch 6B, para 6(a)).
Claiming Multiple Dwellings Relief
MDR offers a valuable relief where a number of dwellings are purchased in a single transaction or linked transactions (FA 2003, Sch 6B). There is no similar relief for commercial properties.
Linked transactions are those made as part of a single scheme or arrangement between the same seller and same purchaser (see FA 2003, s 55(4)).
For the purposes of MDR, a dwelling is defined as a building that is used or is suitable for use as a dwelling. It also includes properties that are in the process of being constructed or adapted for use as a dwelling, together with any appropriate gardens or grounds (FA 2003, Sch 6B, para 7(2)(3)).
MDR works by calculating the SDLT on each dwelling by reference to the average price of all the dwellings. This calculation will include the 3% SDLT surcharge (see FA 2003, Sch 6B, para 5(6A) as inserted by Finance Bill 2016, clause 117). SDLT savings are achieved due to the multiple use of the ‘lower rate’ SDLT charging bands – see example below.
Example: Multiple dwellings relief
For many years, Marvin has operated a residential property letting business. He has decided to transfer the three residential properties comprised in the business to new company, Grapevine Properties Ltd, 100% owned by him.
The properties will be sold to the company at their current market value and the SDLT computations with a MDR claim is shown below:
£
Terrell Cottage 200,000
71 What’s Goingon Ave 400,000
10 Mercy Mercy Me Road 300,000
Total consideration 900,000
Average consideration = (£900,000/3) 300,000
SDLT with MDR claim
£
First £125,000 x 3% 3,750
Next £125,000 x 5% 6,250
Balance - £50,000 x 8% 4,000
Total SDLT 14,000
X 3 dwellings = 42,000
On the other hand, the SDLT without an SDLT claim would be £62,000, calculated as follows (being linked transactions the SDLT is calculated on the total consideration for the three dwellings).
SDLT without MDR claim
£
First £125,000 x 3% 3,750
Next £125,000 x 5% 6,250
Balance - £650,000 x 8% 52,000
Total SDLT 62,000
Making a MDR claim therefore saves SDLT of £20,000!
Practical Tip:
Ensure that MDR is considered when two or more dwellings are being transferred to the same purchaser (or someone connected with them).
This article is based on the current Finance Bill 2016, which may be subject to change before it receives Royal Assent.
