Read the original guidance here:
HMRC SDLT: SDLTM29970 – Relief for transfers involving multiple dwellings: Example 1

Understanding SDLT Relief for Multiple Dwellings

This article explains how Stamp Duty Land Tax (SDLT) relief works for transactions that involve multiple dwellings. We’ll go through an example to illustrate how this relief can be applied, along with other relevant tax rates that may come into play.

What is the Context?

When someone purchases a property, they may need to pay SDLT, which is a tax on property transactions in the UK. However, there are special rules for transactions that involve multiple dwellings. Understanding these rules can help buyers reduce their tax liability.

Example Transaction

Let’s look at a practical example to clarify how this relief applies:

• The purchase involves a freehold of a new block of 20 flats.
• The total purchase price for the block is £2.5 million.
• There is no headlease, and none of the flats have a long lease attached to them.

Defining a Relevant Transaction

In this case, the transaction qualifies for SDLT relief because it involves buying more than one dwelling — specifically, the 20 flats. Although the transaction involves acquiring the entire freehold, for tax purposes, it is treated as if the buyer is acquiring individual interests in each of the flats.

Calculating Chargeable Consideration

The next step is to determine the chargeable consideration for SDLT. Chargeable consideration refers to the total amount paid by the buyer:

• The total purchase price of the flats is £2.5 million.
• The number of dwellings is 20.
• The average chargeable consideration for each flat is £125,000 (£2.5 million divided by 20).

Since this figure of £125,000 is below the normal threshold for SDLT, which currently is 0%, certain reliefs can still apply.

Minimum Rate of Tax Under Relief

Despite being below the 0% threshold, there is a minimum rate of tax that will apply. If all other conditions for Multiple Dwellings Relief (MDR) are fulfilled, the buyer may claim this relief. However, in most situations similar to this one, the higher rate for additional dwellings will likely be applicable.

Higher Rate for Additional Dwellings

Let’s break down what the higher rate means:

• The higher rate for SDLT was introduced effective from 1 April 2016.
• This higher rate adds an additional 3% to the standard SDLT rates.

For example, if a buyer were purchasing another property (which is also classed as an additional dwelling), the SDLT would be calculated at the standard rates plus this extra 3%. This means that even though the tax is being calculated based on the lower amount per dwelling, the additional charge will still apply because more than one dwelling is involved in the transaction.

For further information on higher rates, you can refer to the detailed guidance on SDLTM09730.

Non-Resident Tax Rates

It is important to also consider how non-resident purchasers might be affected by SDLT. If the buyer is not a UK resident, additional rates may apply:

• The non-resident rates add an extra 2% to the standard SDLT rates or the higher rates for additional dwellings.
• This change was applied to transactions effective from 1 April 2021.

It’s essential for non-resident buyers to factor in this additional cost when calculating potential SDLT. For more details on non-resident rates, please check the guidance on SDLTM09850.

Summary of Key Points

• Buying multiple dwellings allows for SDLT relief, as demonstrated in the example of purchasing 20 flats for £2.5 million.
• The average chargeable consideration is calculated per dwelling, which in this case is below the standard threshold.
• Despite this, the higher rate of 3% applies due to the nature of the transaction involving additional dwellings.
• Tax implications for non-residents can lead to further increases in SDLT liability, so it is essential to be aware of the extra charge.

By understanding these principles and accurately calculating potential SDLT liabilities, buyers can better navigate the complexities of property transactions in the UK. This preparation can ensure that they manage their finances and tax responsibilities effectively when making property investments.