HMRC SDLT: SDLTM29977 – Reliefs for transfers involving multiple dwellings: Example 5

Reliefs for Transfers Involving Multiple Dwellings: Example 5

This section of the HMRC internal manual provides guidance on reliefs available for property transfers involving multiple dwellings. It explains the principles and calculations involved in applying these reliefs.

• Details the criteria for qualifying for multiple dwellings relief.
• Illustrates the calculation method using Example 5.
• Explains how to apply reliefs to reduce tax liabilities.
• Provides insights into legislative requirements and compliance.

Example of Reliefs for Transfers Involving Multiple Dwellings

This example explains how reliefs apply when an individual buys multiple homes and shops in one transaction. It represents a scenario where two linked transactions occur, allowing us to highlight the rules regarding Stamp Duty Land Tax (SDLT) and how the calculations work under specific circumstances.

Transaction Details

An individual buys:

• The freeholds of four houses.
• The freeholds of two shops in a separate but linked transaction.

The total value of the linked transaction is £1,500,000.

Breaking Down the House Purchase

The transaction that involves the houses is relevant when it comes to claiming relief. Let’s look closer at the costs of the houses:

• Two of the houses cost £250,000 each.
• The other two houses cost £350,000 each.

To find out the total amount for the houses that qualifies for the relief, we need to sum up these amounts:

• Two houses at £250,000 equals: 2 x £250,000 = £500,000.
• Two houses at £350,000 equals: 2 x £350,000 = £700,000.
• Total value of the houses: £500,000 + £700,000 = £1,200,000.

Calculating SDLT for the Houses

The SDLT needs to be based on the total value of the qualifying dwellings, which in this case is £1,200,000. To understand the calculations:

• Divide the total value (£1,200,000) by the number of houses (4): £1,200,000 ÷ 4 = £300,000.
• Calculate the SDLT on this figure and then multiply that tax due by the number of houses purchased (4).

The higher rate will be applied because the transaction consists of major interests in dwellings. For more details on the higher rate, you can read about it at SDLTM09730.

Considering Non-Residents

If the individual is not a UK resident, they may be subject to the non-resident rates of SDLT as well. Further information on this can be found at SDLTM09860.

Examining the Shop Purchase

Now we need to look into the second part of the transaction, which involves buying the shops. The shops are not considered a relevant transaction for the purpose of relief. Here’s a breakdown of the purchase:

• Each shop costs £150,000, which totals £300,000 for both shops (2 x £150,000 = £300,000).

Even though the shops form part of the overall transaction, they do not qualify for the relief. Instead, we calculate the SDLT based on the total linked transaction value of £1,500,000.

Calculating SDLT for the Entire Linked Transaction

For the complete transaction of £1,500,000, we will calculate the total SDLT due:

• Calculate the SDLT due on the full amount of £1,500,000.
• Once the total tax is calculated, we then apportion the tax to the non-residential element (£300,000).
• This is done by simply finding 20% of the SDLT amount calculated from £1,500,000.

Understanding SDLT Rates

It is essential to be aware that the standard rates of SDLT apply differently to residential and non-residential properties:

• For residential properties, the rates usually range from 0% to 12% based on the purchase price.
• For non-residential properties, the rates are steadier, generally starting from 0% and going up to 2% for properties beyond certain thresholds.

For the transaction in question, since we are dealing with major interests (both houses and shops), the calculations must adhere to the relevant rate for each category.

Example Summary

In this example, the total SDLT can be broken down as follows:

• The residential SDLT will be calculated based only on the £1,200,000 dedicated to the four houses.
• The SDLT for the shops will be based on the full total of £1,500,000 and the non-residential element of the entire transaction.
• The final tax due will be a combination of both residential and non-residential calculations as required by law.

Understanding these elements helps ensure that individuals are aware of the relevant reliefs and how to calculate their SDLT obligations correctly when purchasing multiple properties in a linked transaction.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM29977 – Reliefs for transfers involving multiple dwellings: Example 5

View all HMRC SDLT Guidance Pages Here