HMRC SDLT: SDLTM29983 – Relief for transfers involving multiple dwellings: Example 8

Principles and Concepts of SDLTM29983

This section of the HMRC internal manual provides guidance on relief for transfers involving multiple dwellings, specifically using Example 8. It outlines the principles and concepts related to Stamp Duty Land Tax (SDLT) relief.

• Explains the criteria for qualifying for multiple dwellings relief.
• Details the calculation method for SDLT when multiple properties are involved.
• Provides an example scenario to illustrate the application of the relief.
• Clarifies the legal framework governing SDLT reliefs.

Example Involving Multiple Dwellings in SDLT

This example looks at a situation where a buyer acquires a property that consists of multiple flats and later makes some changes to that property. It specifically focuses on how Stamp Duty Land Tax (SDLT) is calculated in such cases.

Scenario Overview

A purchaser buys the freehold of a block containing eight flats for £1,000,000. After six months, this individual leases two of the flats to separate third parties who are not connected to him. Six months later, the purchaser combines the remaining six flats into three bigger flats.

Understanding Relevant Transactions

The purchase of the flat block is classified as a relevant transaction because it involves acquiring more than one dwelling. The key points to note include:

• The total purchase price for the block of flats is £1,000,000.
• The number of dwellings included in the purchase is eight, which is important for calculating the SDLT.
• The SDLT rate is determined by taking the total price paid and dividing it by the total number of dwellings. In this case, this amounts to:
• £1,000,000 divided by 8 = £125,000.

Since the result is within the £125,000 0% band, it might initially seem that no tax is due. However, this is where specific rules come into play.

Higher Rate for Additional Dwellings

Although the transaction might suggest that no tax is owed, it’s important to understand that the zero percent band does not apply to this type of relief. Instead, the higher rate for additional dwellings comes into effect. For further details on the higher rate, you can refer to SDLTM09730.

Non-Resident Considerations

If any of the buyers are not UK residents, different tax rates may apply. For more information on these non-resident rates, see SDLTM09860.

Leasing of Flats

The process of granting leases for the two flats does not trigger a requirement to recalculate the SDLT. Here are the key points regarding this leasing event:

• The leases occur within a relevant time frame following the original purchase.
• Despite this, the act of leasing does not change the fact that the purchaser still holds an interest in five flats.
• Therefore, there is no need to reassess the tax due at this stage.

Combining Flats

Later, the purchaser decides to combine the remaining six flats into three larger units. This combination occurs within the relevant time frame as well and counts as a significant event. Because of this development, a recalculation of the SDLT is necessary:

• This combination is considered a relevant event under paragraph 6 of the SDLT regulations, which maps out when a recalculation is needed.
• The relevant event is regarded as taking place immediately before the initial purchase transaction.

Recalculating the Tax

When recalculating the SDLT, the new rate is now based on the original purchase price of £1,000,000, divided by the new total number of flats which is five (three combined flats and two leased flats):

• £1,000,000 divided by 5 = £200,000.

As a result of the recalculation, there is now a requirement for the purchaser to reassess how much SDLT is owed. If this new amount means that additional tax is due, there are certain actions the purchaser must undertake:

• The purchaser must file an updated return.
• Any extra payment must be made within a time frame of 30 days from the recalculation.

This situation illustrates how changes to property ownership and structure can affect SDLT obligations, particularly when multiple dwellings are involved. Each stage, from acquiring properties to leasing and restructuring them, has specific rules that can influence taxation outcomes.

For detailed guidance on handling similar transactions, it is advisable to consult the relevant SDLT guidance notes or seek professional advice to ensure compliance with all regulations and responsibilities.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM29983 – Relief for transfers involving multiple dwellings: Example 8

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