HMRC SDLT: SDLTM29900 – Relief for transfers involving multiple dwellings
Relief for Transfers Involving Multiple Dwellings
This section of the HMRC internal manual provides guidance on SDLT relief for transactions involving multiple dwellings. It outlines the principles and concepts related to the relief, helping taxpayers understand eligibility and calculation methods.
- Explains the criteria for qualifying for multiple dwellings relief.
- Details the calculation method for SDLT when multiple dwellings are involved.
- Provides examples to illustrate the application of the relief.
- Clarifies the documentation required to claim the relief.
Read the original guidance here:
HMRC SDLT: SDLTM29900 – Relief for transfers involving multiple dwellings
Understanding SDLT Relief for Transfers Involving Multiple Dwellings
When buying or transferring multiple residential properties, the Stamp Duty Land Tax (SDLT) you are required to pay may be reduced through the Multiple Dwellings Relief (MDR). This part of the guidance explains the key details and concepts regarding this relief.
What is Multiple Dwellings Relief?
Multiple Dwellings Relief allows you to pay less SDLT when you purchase more than one dwelling in a single transaction. Dwellings refer to properties where people can live. This relief can significantly lower the tax bill for buyers of residential properties.
The MDR applies if you purchase two or more dwellings together. For instance, if you were to buy a block of flats, this relief would likely apply.
Conditions for Relief
The MDR can be claimed under specific conditions:
- You must be acquiring two or more dwellings in the same transaction.
- The dwellings must be residential properties, such as houses or flats.
- The relief is available regardless of whether you are an individual or a business.
For example, if you purchase a house and a flat at the same time, you can claim this relief. However, if you bought these properties in separate transactions, the relief would not apply.
How is the Tax Calculated?
The calculation of SDLT when claiming MDR is different from the normal transaction. Instead of calculating tax based on the total price paid for the properties individually, the tax is calculated based on an average price per dwelling.
Step-by-step Calculation Example:
- If you buy three properties for £1,200,000, to calculate the tax, divide £1,200,000 by 3, which equals £400,000 (the average price per dwelling).
- Using the SDLT rates, calculate the tax as if you were buying a single property for £400,000.
- Once you have the tax amount for that average price, multiply it by the number of dwellings to find the total SDLT due.
This method can lead to significant savings, especially in areas where property values are high.
Relevant Legislation
The MDR is outlined in the Finance Act 2003, particularly in Schedule 6B, Paragraph 2. It’s vital to refer to actual legislation for precise details regarding eligibility and calculations.
If you are unsure about any part of the legislation, consulting a tax professional can be an invaluable step to ensure compliance and optimal tax planning.
Applications to Partnerships
The relief also applies to partnership transactions. If a partnership buys multiple dwellings together, the MDR can still be claimed as long as all other conditions are met. Each partner may find the benefits of this relief particularly advantageous when sharing the tax burden.
Understanding “Dwellings”
For the purpose of claiming the MDR, it’s essential to understand what constitutes a ‘dwelling’:
- A dwelling can be a house, a flat, or any residential property. However, it must be suitable for someone to live in.
- Properties that are not residential, such as purely commercial buildings or land, do not qualify.
Specifically, properties that are used for student accommodation may also fit within the definition of dwellings, depending on the circumstances.
Transaction Types Covered
The relief applies to various types of transactions:
- Purchasing properties as freehold or leasehold.
- Buying off-plan properties where contracts are exchanged before the completion date.
However, certain linked transactions must be taken into consideration. If you buy several properties but are deemed linked transactions with a different tax treatment, the MDR may not apply. This can include situations where the properties are closely related in terms of sale agreement or ownership.
Example Scenarios
The following examples illustrate when MDR can be beneficial:
Example 1:
A buyer purchases two flats for a combined total of £600,000. They can apply MDR and calculate the tax based on an average price of £300,000 per flat, resulting in a lower tax bill compared to purchasing each flat separately without relief.
Example 2:
A property investor purchases a house and a semi-detached family home under one agreement. The total cost is £850,000. Using MDR, the calculation results in considerable tax savings compared to separately purchasing each property.
Example 3:
A local authority buys three dwellings for social housing for £1,500,000. As this involves multiple dwellings, they claim MDR, significantly reducing their SDLT obligation.
Each of these scenarios showcases how multiple transactions can benefit from this particular relief.
Further Considerations
- If the number of dwellings you buy changes later, such as in a sale agreement where there are originally two flats but one is sold, you may need to submit a further return to update your SDLT calculations.
- The rules regarding off-plan transactions are complex, and it’s essential to ensure that every aspect of the agreement is considered when seeking MDR.
Final Thoughts: Overall, understanding the relief for transfers involving multiple dwellings can lead to significant savings in SDLT. This relief is especially beneficial for individuals and businesses looking to invest in residential properties. Always stay informed and seek expert advice to navigate these tax regulations effectively.