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HMRC SDLT: SDLTM29987 – Reliefs for transfers involving multiple dwellings: Example 10

Understanding SDLTM29987 – Reliefs for Transfers Involving Multiple Dwellings

This article explains how stamp duty land tax (SDLT) reliefs work for individuals who buy and sell multiple dwellings. We will use a practical example to illustrate the key points.

The Scenario

Imagine that an individual buys six semi-detached houses. Six months later, the individual sells two of these houses to a third party who is not connected to them. The third party then merges these two houses into one larger unit. After another six months, the individual sells another two houses, this time to their spouse, who also merges them into a single unit. Finally, after another six-month period, the individual merges the last two houses and sells the resulting single unit to another unconnected third party.

Let’s break down each step of this process and the implications for SDLT.

First Sale: Selling to an Unconnected Third Party

– The first sale involves the individual selling two of the semi-detached houses to an unconnected third party.
– This sale does not count as an event for the purposes defined in FA03/SCH6B/PARA6.
– Selling to an unconnected party means that it closes the relevant period concerning those two houses. Because of this, the merging of these two houses by the new owner does not impact the relief the original buyer received.

Second Sale: Selling to a Connected Person

– The second sale happens when the individual sells another two houses, this time to their spouse, who combines the two into one larger unit.
– This sale also does not count as a relevant event for the SDLT relief calculations.
– However, since the houses are being sold to a connected person (the individual’s spouse), the timeline is still considered connected to the original purchase.
– The merging of these two houses counts as an event. The tax calculation needs to be adjusted based on five dwellings, which comprises:
– The combined house from the second sale,
– The two houses sold to the first unconnected buyer,
– The two houses remaining with the individual.

Thus, the household mix now includes five units – the merged house and the four previously sold houses.

Combining the Last Two Houses

– Now, the individual combines the last two remaining houses into a single unit.
– This event is recognized for SDLT relief purposes.
– For the tax calculations, the number is adjusted to four dwellings:
– This consists of the merged unit from the last action,
– The two houses previously sold to the unconnected third party.

At this stage, it is determined that four dwellings are under consideration.

Final Sale: Selling the Last Remaining House

– The final act is to sell the merged unit created from the last two houses.
– Once this sale takes place, it completely closes off the relevant period for the original transaction.
– This means that the entire timeline of events, lasting a total of eighteen months from the first acquisition to the final sale, is now accounted for in terms of SDLT calculations.

Key Takeaways

– Buying and selling multiple properties can create a complex situation for SDLT reliefs.
– Each sale must be evaluated based on who the buyer is (connected to the seller or an unconnected party).
– When properties are combined or merged, this can trigger events that affect tax calculations.

In this example:
– The individual first sold to an unconnected buyer, thus completing a period that doesn’t affect the SDLT relief for the first sales.
– The subsequent sales to a connected party (the spouse) resulted in new tax considerations because the merging is counted as an event.
– Finally, the merging of the last two houses and their sale concludes the individual’s SDLT obligations.

Understanding these principles helps in managing the financial responsibilities of buying and selling multiple properties, ensuring compliance with tax regulations.