Read the original guidance here:
HMRC SDLT: Example 8: Tax Relief for Multiple Dwelling Purchases and Subsequent Lease Grants

Stamp Duty and Multiple Dwellings: Understanding Relief

This guidance provides an overview of Stamp Duty Land Tax (SDLT) involving purchases of multiple dwellings. We will illustrate the main ideas and principles, using practical examples to simplify understanding.

Example of a Relevant Transaction

Consider a scenario where a buyer purchases the freehold of a block containing eight flats for £1,000,000. Six months after the purchase, the buyer signs 99-year leases for two of those flats, leasing them out to different individuals. Another six months later, the remaining six flats are combined to create three larger flats.

What Constitutes a Relevant Transaction?

• A relevant transaction occurs when a buyer acquires more than one dwelling. In this case, the buyer has acquired eight flats, making it a relevant transaction.
• The rate of SDLT is determined by taking the total amount paid – in this case, £1,000,000 – and dividing it by the total number of dwellings. Since there are eight flats, this calculation gives us £125,000.
• The initial 0% tax band does not apply to this transaction because we are focusing on the higher rate of SDLT that applies to additional dwellings.

For more information on the higher rate of SDLT, please refer to SDLTM09730. If any buyer is not a UK resident, then the non-resident SDLT rates might also apply. More details can be found at SDLTM09860.

Impact of Granting Leases

When the leases for the two flats are granted, it does not trigger a need to recalculate the tax owed. This is true even when it happens within what is known as the “relevant period” following the original purchase. Because the buyer has not sold all of the acquired interest from the initial purchase, this event does not bring the relevant period to an end.

Combining the Remaining Flats

The next significant event is the combination of the six remaining flats into three larger flats. This action also takes place within the relevant period. It qualifies as a relevant event according to paragraph 6 of the SDLT guidance, meaning a recalculation of SDLT is necessary.

For the purpose of this recalculation, we assume that this combining event is deemed to take place just before the original purchase. As a result, the tax calculation is now based on the original purchase price of £1,000,000, divided by five. The total of five includes the three new larger flats and the two flats for which leases were granted.

The calculation now stands at £200,000. If this results in a higher tax amount than previously calculated, the buyer must resubmit their SDLT return and pay the additional owed tax within 30 days.

Understanding Recalculation of Tax

When recalculating SDLT, it is essential to consider the implications of changes to the property structure. In this example, the buyer’s actions led to a change in the number of dwellings which involved adjustment in the tax calculation.

• The original purchase attracted a specific tax rate based on eight dwellings.
• After changing the configuration of the properties, the transaction must be reassessed to reflect the new number of dwellings (in this case, five).
• The SDLT paid initially may need to be adjusted and potentially increased.

Buyers should always stay informed about potential triggers for tax recalculations, such as renting out properties or making significant alterations to their structure. It is the buyer’s responsibility to ensure they comply with SDLT regulations during the property ownership period.

Final Considerations for Buyers

• When entering into property transactions, especially those involving multiple properties, keeping detailed records is crucial. This will aid in confirming the number of dwellings and the purchase price.
• Demand for clarity in communication is vital with tax authorities. When in doubt, seeking professional guidance can be beneficial.
• Each transaction can potentially have different tax implications depending upon the individual circumstances of the purchase and subsequent property alterations.

Understanding these guidelines is essential for anyone involved in purchasing multiple dwellings, as even minor changes in property ownership or structure can significantly impact tax obligations. Always refer to the relevant sections of the HMRC guidance when assessing your position regarding SDLT.