SDLT Relief for Multiple Residential Purchases

The Finance Bill 2011, which is expected to come into force upon receiving Royal Assent during the course of July 2011, provides some welcome relief for residential investors at a time when the depressed residential property market arguably needs all the help it can get. The relief will take the form of potentially lower charges of Stamp Duty Land Tax (“SDLT”) on the acquisition of residential property portfolios.


Price SDLT Rate
Up to £125,000 Zero
Over £125,000 and up to £250,000 1%
Over £250,000 and up to £500,000 3%
Over £500,000 up to £1,000,000 4%
Over £1,000,000 5%

In the case of a transaction involving six or more dwellings, the non-residential thresholds apply. Those thresholds are essentially the same as the residential thresholds save that the zero rate applies up to £150,000 and the 5% threshold does not apply, so that the maximum rate is 4% for any transaction over £500,000.

The position for investors prior to the new law coming into effect is that the purchaser of a property portfolio that forms one transaction or a series of linked transactions is liable to pay SDLT based on the combined purchase price for the portfolio as a whole. Unless the purchaser can satisfy HMRC that each property in the portfolio was acquired individually and without any legal link to each other then the SDLT rate applicable to the transaction would be calculated according to the total consideration paid. For instance, if three properties were purchased in a linked transaction for a total of £750,000 then SDLT would be charged at 4%, which gives an SDLT liability of £30,000. Compare that to the situation if the three properties were assessed individually at a price of £250,000 each. The SDLT liability in that case would be 1% on each of the three properties, giving a combined SDLT charge of just £7,500.

It is clear therefore that the pre-Finance Bill 2011 SDLT rates can give rise to very substantial SDLT liabilities for residential property investors who do not structure their portfolio acquisitions in a tax efficient manner.

New Law

The new provisions provide a new relief of a revised rate of SDLT which will be applicable to qualifying transactions which involve the acquisition of two or more dwellings with an effective date on or after the date that the new law takes effect. For the purposes of the relief provisions, a “dwelling” includes “off plan” purchases where the purchaser commits to purchasing the dwelling prior to the commencement of construction work.

The relief will operate by calculating the applicable SDLT rate by reference to the average price for each dwelling i.e. the combined purchase price divided by the number of dwellings acquired. Therefore, in the case of the example given above, the average price of the three dwellings acquired for a combined purchase price of £750,000 is £250,000. SDLT would therefore be charged at a rate of 1% on the combined purchase price, giving rise to an SDLT charge of £7,500.

Where the relief applies, the new law will supersede the old rules which provided for a transaction involving the acquisition of six or more dwellings to be assessed against the non-residential thresholds. The new relief means that those types of transactions will be assessed on the basis of the average price and the residential thresholds.

It is important to note that:

  1. The minimum rate of SDLT payable under the new relief provisions is 1%. Therefore, even if the average price of the dwellings in the transaction would be in the zero SDLT liability threshold, SDLT will still be charged at 1% on the combined purchase price. For example, if ten dwellings were acquired for a combined price of £1,000,000 the average price per dwelling would be £100,000. However, the SDLT liability would not be zero but 1% of £1,000,000, being a charge of £10,000.
  2. Any dwelling purchased subject to a lease of over 21 years or more falls outside the new relief. Any portfolio which included such dwellings would be the subject of an apportionment whereby the relief rate of SDLT would only apply to the consideration applicable to the part of the portfolio which did not include dwellings let on leases in excess of 21 years and the standard SDLT rates would apply to the consideration for the remainder.

Hopefully, the new rules will have the desired effect of giving a boost to the residential property market. Any investors in the process of acquiring a residential property portfolio would be well advised to bear these provisions in mind and consider whether or not delaying committing to a transaction until the Finance Bill 2011 comes into force would give them an added bonus of a reduced SDLT liability.

Peter Chape

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