HMRC SDLT: SDLTM29973 – Relief for transfers involving multiple dwellings: Example 3

Relief for Transfers Involving Multiple Dwellings: Example 3

This section of the HMRC internal manual provides guidance on the relief available for transfers involving multiple dwellings. It explains the principles and concepts related to Stamp Duty Land Tax (SDLT) relief.

• Details the conditions under which SDLT relief can be claimed.
• Provides a comprehensive example illustrating the application of the relief.
• Explains the calculation method for determining the relief amount.
• Outlines the documentation required to support a claim.

Understanding SDLTM29973 – Relief for Transfers Involving Multiple Dwellings

Overview of the Transfer

This example looks at a situation where the freehold reversion of a block of 20 flats is being sold. Understanding the type of lease arrangements in place is important to determine if any relief is available for the Stamp Duty Land Tax (SDLT).

Property Details

– The property in question is a block of 20 flats.
– There is a 999-year headlease granted to a company that is controlled by the tenants.
– Out of the 20 flats:
– Ten flats are under 99-year leases, which means their lease terms are long, but not the most extended.
– The remaining ten flats are leased for 21 years or less, which is a shorter lease term.

What is Meant by Freehold Reversion?

The term ‘freehold reversion’ refers to the ownership of the land and property that was previously leased out. When someone purchases the freehold reversion, they essentially regain control of the property from the leasehold holder.

In this example, the person or company purchasing the freehold reversion is looking to obtain ownership over the block of flats.

Understanding Headleases and Lease Terms

A headlease is a primary lease that allows one party (the leaseholder) to lease out the property to others (the sub-leases). In this case, the headlease is for 999 years, which is considered a long lease.

It’s vital to distinguish between different types of leases:

– Long leases: Generally, leases over 21 years. In this example, the headlease of 999 years qualifies as a long lease.
– Short leases: Leases that are 21 years or less. The ten flats here that have leases of 21 years or less fit this category.

What is the Relief for Multiple Dwellings?

The relief for transfers involving multiple dwellings allows the buyer to pay less SDLT when acquiring more than one residential unit. This relief applies when certain conditions are met, particularly concerning the types of leases involved.

Is the Transfer Relevant for Relief?

In this particular case, the transfer of the freehold reversion is not recognised as a relevant transaction for the purpose of this relief. The reason for this is as follows:

– All the flats are subject to the 999-year headlease.
– Since the headlease lasts more than 21 years, it does not meet the criteria needed for relief.

For the relief to apply, a transaction must involve a relevant arrangement where at least one of the properties involved is under a short lease. Since all flats are covered by the headlease, no relief can apply here.

What If the Transaction Were Different?

If the seller had transferred the headlease instead of the freehold reversion, the situation would change:

– The transaction would be considered relevant.
– In this scenario, the ten flats that are under leases of 21 years or less would qualify for the relief.

This distinction is crucial when evaluating any potential taxes owed during property transactions.

Summary of Key Points

– The block of flats consists of a mixture of long and short leases.
– The freehold reversion transfer does not qualify for SDLT relief because it only involves long leases.
– Understanding whether a lease is short or long is essential when considering tax reliefs.
– If the nature of the transaction had been different (i.e., transferring the headlease), there could have been potential tax savings.

Understanding these different properties and their leases helps clarify how SDLT works in various scenarios. Always carefully check lease terms and the nature of the property transactions to ensure compliance with tax regulations. For more information, check the detailed guidelines about SDLT: [SDLTM0000](https://stampdutyadvicebureau.co.uk/hmrc/SDLTM0000).

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM29973 – Relief for transfers involving multiple dwellings: Example 3

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