Many people want to know how to calculate Stamp Duty Land Tax on the purchase of multiple dwellings including homes with granny annexes and second properties. In this short blog, I discuss the basics of how SDLT is calculated for multiple properties.
SDLT Multiple Dwellings Relief (MDR)
A relief is available for the acquisition of two or more dwellings for transactions with an effective date on or after 19 July 2011. The relief was originally intended to lower the SDLT cost involved in bulk purchases of residential property to improve the supply of private rented housing. However, it is available whenever two or more dwellings are acquired, including where a main house is acquired with a granny annex.
The relief operates by reducing the Stamp Duty rates charged on the acquisition of multiple dwellings which would normally be determined by the aggregate consideration so that it is related to the tax that would have been charged had the dwellings been acquired individually.
The rate of SDLT will normally be the appropriate rate under the alternative Table A applicable to a higher rates transaction for the purchase of additional residential properties which you can read about here.
The relief must be claimed in the land transaction return (using the specific code “33” in the SDLT1). Where a transaction or a scheme, arrangement or series of linked transactions includes multiple dwellings, the amount of tax charged in respect of the dwellings is computed by reference to the mean consideration (i.e. the total consideration attributable to the dwellings divided by the number of dwellings).
This will give an amount of tax related to the mean consideration which is then multiplied by the number of dwellings to produce the total tax payable. However, if the aggregate amount of tax found by this method is less than 1% of the total dwellings consideration, then the tax is taken to be 1% of the consideration attributable to the dwellings. Although the legislation refers to ‘transfers’ involving multiple dwellings it is understood that HMRC accept that the grant of new leases is included in the relief.
The 3% additional rates can apply to the mean consideration in certain cases however HMRC revised their published guidance on 13 November 2020 in SDLTM09740 to confirm that the higher rates will, in their view, not apply to the dwellings element of a transaction involving both residential and non-residential property unless the non-residential element is negligible or artificially contrived. The reason for this is that a mixed-use land transaction involving multiple dwellings consists of more than only an interest in two or more dwellings (namely the non-residential property) and so does not meet the requirement for the higher rates to apply in FA 2003, Sch 4ZA paras 5(1)(b) and 6(1)(b) that the subject matter of the transaction consists only of those dwellings.
SDLT Benefit for Under-Construction Property
Acquisitions of property where construction or adaption of a single dwelling or dwellings has not yet commenced at the time of substantial performance can also form the basis of a claim for multiple dwellings relief where substantial performance is the effective date of the transaction for SDLT purposes and there is an obligation in the contract to carry out the construction or adaption. In such cases, the dwelling or dwellings are deemed to exist for the purposes of the relief. Otherwise, relief is available if the dwelling or dwellings are in the process of construction or adaptation at the effective date of the transaction.
For a more comprehensive and practical guide to when MDR can be claimed based on decided cases please see our guide to MDR on the Cannon Chambers website.
Do You Pay Stamp Duty on a New Build Property?
Yes Stamp Duty is payable on a new-build property assuming that construction has begun or will have begun by the time you substantially perform or complete the contract. The position is more complicated however when you buy the land that is either without property on it, or the existing home is derelict and you agree to pay the seller to build a new home on the land for you. In such cases, you need to take expert advice on whether the arrangement attracts Stamp Duty or not.
Also, if you are a first-time buyer you may be able to claim relief. The relief applies only if relevant consideration is £500,000 or less and works by applying a zero rate on consideration up to £300,000 and a 5% rate to any excess over £300,000. The relevant table of rates looks like this:
Table A: Residential [First-time Buyer Stamp Duty Relief]
|So much as does not exceed £300,000||0%|
|Any remainder (so far as not exceeding £500,000)||5%|
Consideration in the form of rent does not count towards the total and is not subject to relief.
Stamp Duty Land Tax Benefit for Multiple Properties
In addition to the possibility of claiming a reduced rate of SDLT under multiple dwellings relief (see above), where six or more dwellings are purchased in a single transaction, those dwellings are treated as not being residential property so that the lower rates of Stamp Duty in Table B apply.
HMRC’s SDLT guidance states that a “single transaction” means a single contract so that there can be separate completion times for one or more of the six dwellings. The Table B rates are:
Table B: Non-Residential or Mixed
|So much as does not exceed £150,000||0%|
|So much as exceeds £150,000 but does not exceed £250,000||2%|
|The remainder (if any)||5%|
If the transaction forms part of a number of linked transactions the relevant consideration for the purpose of the table above is the total of the chargeable consideration for all the linked transactions.
If you have any questions or need advice about SDLT on the purchase of multiple properties or homes with granny annexes contact Patrick Cannon now.