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HMRC SDLT: Examples of SDLT Multiple Dwellings Relief Abolition and Transitional Rules

SDLT and Linked Transactions: Understanding the Abolition of Multiple Dwellings Relief

The guidance below explains how the abolition of Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT) affects property transactions. It focuses on how transactions are linked and how tax is calculated for them, including examples.

General Rules for Linked Transactions

A linked transaction occurs when two or more transactions are considered part of the same arrangement. The treatment of these linked transactions under SDLT depends on the timing and structure of the purchases.

When determining tax for linked transactions, the following principles apply:
– Each transaction usually has its own tax treatment.
– If transactions are linked, they may share certain tax reliefs or nil rate bands.
– The specific rules for calculating tax can vary based on when the transactions occur in relation to the abolition of MDR.

Key Concepts

1. Multiple Dwellings Relief (MDR): A relief mechanism that previously allowed buyers of two or more dwellings to receive a reduction in SDLT. This has now been abolished.

2. Linked Transactions: Translations that are connected, meaning they are part of a single arrangement, allowing certain tax calculations to consider them together.

3. Nil Rate Band: The threshold up to which no SDLT is payable. In certain transactions, buyers may benefit from more than one nil rate band.

4. Section 55 FA03: The legislative framework that guides how SDLT is calculated, including applicable rates and reliefs.

Examples of Linked Transactions Post-Abolition

Example 1

Transaction 1: On 14 March 2024, an individual buys two homes from the same seller. This transaction occurs before the abolition of MDR.

Transaction 2: On 14 June 2024, the same individual buys two additional homes from the same seller as part of the agreement made in Transaction 1. This transaction occurs after MDR has been abolished.

– Tax on Transaction 1: A claim for MDR is made, and the tax is calculated accordingly.

– Tax on Transaction 2: No claim for MDR is permitted since this transaction is post-abolition. Therefore, Transaction 2 is treated as separate from Transaction 1. Tax is calculated at the residential rates according to Section 55 FA03, allowing full nil rate band application.

Example 2

Transaction 1: On 14 March 2024, an individual completes the purchase of one house. This is a pre-abolition transaction.

Transaction 2: On 14 June 2024, the individual then buys two more homes from the same vendor as part of the deal linked to Transaction 1.

– Tax on Transaction 1: No MDR is available as only one dwelling is involved, leading to standard tax calculations.

– Tax on Transaction 2: This transaction remains linked to Transaction 1, thus, no claim for MDR applies. Tax is recalculated for both transactions under the linked transaction rules of Section 55(1C) FA03. Only one nil rate band applies across both transactions.

If Transaction 2 results in additional tax due for Transaction 1, the buyer must submit a further return under Section 81A FA03.

Example 3

Transaction 1: On 14 March 2024, an individual purchases one dwelling.

Transaction 2: On 24 March 2024, the individual buys a mixed-use property consisting of a shop with two flats above, linked to Transaction 1.

Transaction 3: On 14 June 2024, the individual buys another shop with two flats from the same seller, linked to all previous transactions.

Option 1 – Claim to MDR made:
– Tax Calculation for Transaction 1: No claim for MDR is made for the single dwelling.

– Tax for Transaction 2: This remains linked to Transaction 1. A claim for MDR is made despite the mixed transaction, leading to tax recalculation for both transactions according to Schedule 6B.

– Tax for Transaction 3: The abolition of MDR means there is no claim allowed. Transaction 3 is treated independently, and tax is calculated at non-residential rates according to Section 55 FA03, applying a full nil rate band.

Option 2 – No Claim to MDR:
– Tax for Transaction 1: Tax is calculated at residential rates.

– Tax for Transaction 2: As this is linked to Transaction 1, and no MDR claim is made, the tax is calculated at non-residential rates.

– Tax for Transaction 3: Also linked to previous transactions, applying non-residential rates, adjusting taxes appropriately. Only one nil rate band is available for the three transactions.

Example 4

A company agrees to buy a total of thirty residential properties from a single seller as part of a single deal.

Transaction 1: The company completes the purchase of fifteen properties before 1 June 2024.

Transaction 2: The remaining fifteen properties are completed after 1 June 2024.

Option 1 – Claim to MDR made:
– Tax on Transaction 1: A claim for MDR is made on the first fifteen properties, leading to relevant tax calculations.

– Tax on Transaction 2: There is no MDR claim allowed for this transaction. The ‘six or more’ rule in Section 116(7) applies, meaning that the additional fifteen properties will be charged at non-residential rates. A full nil rate band applies due to the absence of linking.

If the buyer decides to withdraw their claim for MDR for Transaction 1 and instead applies the ‘six or more’ rule, they can amend the return for Transaction 1 if they are still within the time frame.

Option 2 – Apply the ‘6 or more’ rule:
– The rule applies to both transactions, adjusting the tax to account for them being linked. Only one nil rate band is available across the total of thirty properties.

This guidance is designed to clarify how changes to MDR impact tax calculations in linked transactions. By understanding these examples, individuals and companies can better navigate their SDLT obligations and properly determine the tax owed in various property transactions.