Stamp Duty Land Tax (SDLT) is payable on acquisitions of residential freehold land where valuable consideration (usually cash) worth more than £125,000 is being given, unless the particular type of transaction is exempt.
For residential properties, the rates at which SDLT is payable were changed towards the end of 2014 from a fixed percentage, which varied depending upon the purchase price, to a slab system whereby the purchase price is taxed in stages as follows:
|Purchase Price||SDLT rate|
|Up to £125,000||Zero|
|The next £125,000 (the portion from £125,001 to £250,000)||2%|
|The next £675,000 (the portion from £250,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
Multiple Dwellings Relief (MDR)
There are a range of SDLT reliefs available, which may provide a reduction in liability for SDLT, including multiple dwellings relief (MDR).
Briefly, to claim MDR on SDLT liability on the purchase of property, the purchaser must acquire an interest in more than one “dwelling”.
Under the Finance Act 2003, a dwelling is a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use. There is no clear definition of what “suitable for use as a dwelling” and it will be a question of fact in each case. However, there are some exclusions in the legislation where buildings cannot be considered a dwelling; e.g. hotels.
It is important to give careful consideration as to whether or not MDR is available as failure to correctly report SDLT liability can result in sanctions from HMRC and fraudulent reporting is a criminal offence. Therefore, you should take specialist advice where there is any doubt as to the availability of the relief on a transaction.
How the relief works
In a situation where a property purchase is clearly attributable to more than one dwelling and MDR is available, to calculate the SDLT payable:
1. Divide the purchase price by the number of dwellings to give a “Price Per Dwelling”.
2. Calculate the SDLT payable on the Price Per Dwelling using the appropriate residential rates.
3. Multiply SDLT payable per dwelling by the number of dwellings to give the total SDLT payable.
The SDLT due will be subject to a minimum of 1% of the total purchase price if greater than the figure calculated using steps 1-3 above.
A transaction includes the acquisition of 4 “dwellings” for £950,000.
- £950,000/4 = £237,500 per dwelling
Tax per dwelling =
- 0% x £125,000 = £0
- 2% x £112,500 = £2,250
- £2,250 x 4 dwellings = £9,000
- £9,000 is less than the minimum tax of 1% of the purchase price, so the tax payable is 1% of the purchase price of £950,000 = £9,500.
Tax payable without claiming MDR would be £38,750.
If you are acquiring land that consists of multiple dwellings, please contact either Ben Wheeler in our Truro office on 01872 265147 or Simon Gawler in our St Austell office on 01726 627316 to discuss the acquisition and the SDLT implications.