HMRC SDLT: SDLTM09766 – SDLT – higher rates for additional dwellings: Individuals – purchasing two or more dwellings – Para 5 Sch 4ZA FA2003
SDLT Higher Rates for Additional Dwellings
This section of the HMRC internal manual addresses the Stamp Duty Land Tax (SDLT) higher rates applicable to individuals purchasing two or more dwellings. It provides guidance on the application of Paragraph 5, Schedule 4ZA of the Finance Act 2003.
- Explains the criteria for higher SDLT rates.
- Details the conditions under which these rates apply.
- Outlines exceptions and reliefs available to taxpayers.
- Provides examples to illustrate the application of the rules.
Understanding SDLT Higher Rates for Multiple Dwelling Purchases
This guidance explains the Stamp Duty Land Tax (SDLT) rules when an individual buys two or more homes in one transaction. The key point is that the transaction will either fall under the higher rates of tax or it won’t. There is no possibility of splitting rates within a single transaction involving only residential properties.
Two Tests for Higher Rates
When purchasing multiple homes in a single transaction, there are specific tests to determine if the higher rates of tax will apply:
- Test 1: At least two of the dwellings must meet specific conditions (Conditions A, B, and C).
- Test 2: If only one dwelling is significantly valued within the overall transaction, special rules may apply. For this, refer to SDLTM09755.
Conditions for the First Test
To pass Test 1 and qualify for the higher rates, at least two of the properties must satisfy the following conditions:
- Condition A: The price paid for one of the homes must be at least £40,000.
- Condition B: The individual must not be purchasing a lease with more than 21 years remaining on it at the time of purchase.
- Condition C: A purchased home cannot be subsidiary to another home being purchased.
What is a Subsidiary Dwelling?
A dwelling is considered subsidiary to another if:
- Both dwellings are located in the same building or on the same grounds, and
- The value assigned to the subsidiary dwelling is at least two-thirds of the total value of both properties.
Examples of Applying the Rules
Example 1: George’s Purchase
George purchases a three-storey townhouse that includes a basement apartment with separate access. The total price for the property is £1 million, and £250,000 is allocated to the basement apartment.
- Total value = £1 million
- Value of basement apartment = £250,000
- Value of main dwelling = £750,000
In this case:
- Condition A: The basement’s value (£250,000) meets the minimum requirement.
- Condition B: George is not buying a long lease, so this condition is met.
- Condition C: The basement apartment is subsidiary to the townhouse. It is in the same building, and its value is less than one-third of the total price.
Since Condition C is not satisfied, the higher rates of SDLT do not apply to this transaction.
Example 2: Janet’s Purchase
Janet buys a detached house and a separate coach house situated in the property’s grounds, mainly for her mother. The total price is £1 million, and the coach house is valued at £350,000.
- Total value = £1 million
- Value of coach house = £350,000
- Value of detached house = £650,000
In this case:
- Condition A: The coach house’s value (£350,000) is over the £40,000 limit.
- Condition B: Janet is not purchasing a long lease, thus fulfilling this condition.
- Condition C: Neither dwelling is subsidiary as the coach house’s value exceeds one-third of the total price.
Since Conditions A, B, and C are all met, the transaction is classified as a higher rates transaction, and the higher rate of SDLT will apply.
Understanding Additional Considerations
When it comes to purchasing two or more dwellings, it is important to consider factors such as valuation and the relationship between the properties involved. The main focus is ensuring that the conditions outlined above are carefully reviewed.
Potential Impact of Shared Structures
When properties are interconnected, attention must be given to whether they are distinct enough to be treated as separate for SDLT purposes. If they share key features, this could affect how they are classified concerning the subsidiary condition.
More on Higher Rates Transactions
Higher rates of SDLT generally apply when someone buys an additional dwelling, such as a buy-to-let property, and there are specific rates that apply only in these scenarios. The additional tax is charged to discourage property speculation and investment buying in the housing market.
Exceptions and Reliefs
There can be specific exemptions or relief options available when buying multiple homes. However, these generally only apply under certain circumstances and are not automatic. For instance, first-time buyers may have different thresholds.
Documentation and Compliance
It is crucial for buyers to fully understand their obligations when submitting a SDLT return and paying any tax due. Incorrect classification of the transaction could lead to underpayment or overpayment of tax, either of which can lead to penalties or delays. Keeping thorough records and being clear about property valuations will save confusion later.
Final Remarks on SDLT Process
To navigate SDLT, individuals must familiarize themselves with the necessary documentation and confirm that all criteria are met to avoid facing higher tax rates when purchasing multiple properties. It may be beneficial to consult professionals who specialize in tax law to clarify individual circumstances and ensure compliance with SDLT regulations.
As rules and interpretations can change, remaining updated with the latest guidance from HMRC is essential for accurate processing of transactions involving multiple dwellings.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09766 – SDLT – higher rates for additional dwellings: Individuals – purchasing two or more dwellings – Para 5 Sch 4ZA FA2003
If you think you’ve paid too much stamp duty, I might be able to help you reclaim it.
