HMRC SDLT: SDLTM29981 – Reliefs for transfers involving multiple dwellings: Example 7

Reliefs for Transfers Involving Multiple Dwellings: Example 7

This section of the HMRC internal manual provides guidance on the application of reliefs for transfers involving multiple dwellings. It includes an example to illustrate the principles and concepts involved.

Explains the criteria for qualifying for reliefs on multiple dwelling transfers.
Provides a detailed example to demonstrate the calculation of reliefs.
Outlines the legislative framework governing these reliefs.
Offers insights into the practical application of these rules.

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Read the original guidance here:
HMRC SDLT: SDLTM29981 – Reliefs for transfers involving multiple dwellings: Example 7

Understanding SDLTM29981: Reliefs for Transfers Involving Multiple Dwellings

Introduction to the Scenario

In this example, we will look at a property purchase involving multiple dwellings.

The Purchase Agreement

– A buyer agrees to buy the freehold of an unfinished block containing six flats at a price of £1.2 million.
– The payment for the property is made before the deal is completed.

Contract Variation

– Six months later, the original agreement changes. Instead of six smaller flats, four larger flats will be constructed.
– Despite this change, the total payment amount remains the same at £1.2 million.

Understanding Relevant Transactions

– This property purchase is considered a relevant transaction because it involves acquiring more than one dwelling, specifically the six flats.
– The contract is seen as substantially performed when the complete payment (the consideration) is made.

Tax Calculation Basics

– The Stamp Duty Land Tax (SDLT) amount is calculated by dividing the total payment by the number of dwellings.
– Since the original purchase involved six flats, the tax rate is based on that initial number.

Higher Rates for Additional Dwellings

– Because more than one dwelling is being purchased, a higher SDLT rate applies.
– Detailed information about this higher rate can be found at SDLTM09730.
– If any buyer is a non-resident in the UK, different non-resident SDLT rates may apply. More information about those rates can be found at SDLTM09860.

Impact of Contract Variation on Tax

– The variation in the contract is treated as happening just before substantial performance (when the complete payment was made).
– After the changes to the contract regarding the number of flats, the tax amount will now be calculated based on the new number of dwellings.

Calculating the New Tax Amount

– Since the number of flats was reduced from six to four, the tax calculation must now reflect this change.
– Therefore, the total consideration (the amount paid) is divided by the revised number of flats (four).

Increasing Tax Liability

– If this new calculation leads to a higher tax, the buyer must file an additional SDLT return within 30 days of the contract variation and pay any extra tax owed.

Exceptions in Tax Calculations

– It is important to note that if the total number of flats had been increased instead of decreased, this alteration would be ignored in the SDLT calculations.

Summary of Key Points

– The purchase involved six flats with a total consideration of £1.2 million, which makes it a relevant transaction.
– A later change in the contract to four larger flats affects how SDLT is calculated.
– The tax must be recalculated based on the new number of dwellings, and if it increases, the buyer must report this change and pay any additional tax required.

Example of Tax Calculation

Let’s illustrate this with a simple breakdown:
– Initial purchase of six flats for £1.2 million means the tax is based on:
– £1.2 million / 6 = £200,000 per dwelling.
– After the change to four larger flats, the calculation changes to:
– £1.2 million / 4 = £300,000 per dwelling.
– If the tax rate applicable to £300,000 per flat is higher than for £200,000, the buyer would now owe more tax.

This example highlights how changes in the number of dwellings can impact tax calculations and obligations under SDLT. Proper attention to these changes is essential for fulfilling tax responsibilities.