Q: I have a small portfolio of residential properties which I let and I have heard that I can reduce my Stamp Duty Land Tax (SDLT) costs if I buy more than one property at a time.
A: New higher rates of SDLT apply from 1 April 2016 where an ‘additional’ dwelling is purchased by an individual or, indeed, any dwelling is purchased by a company or discretionary trust. This means a 3% increase in SDLT rates on purchases for most residential property investors, unless the consideration for the dwelling is less than £40,000.
If an investor purchased two dwellings from two separate vendors for, say £100,000 and £250,000, the total Stamp Duty would be £13,000. For ‘multiple purchases’ (between the same purchaser and vendor in the same or linked transactions) the Stamp Duty is based on the total consideration paid, so if an investor purchased the two dwellings together from the same vendor, the Stamp Duty would potentially be £18,000, calculated on the combined consideration of £350,000.
However, where two or more dwellings are purchased together in the same or linked transactions, Multiple Dwellings Relief (MDR) can reduce the Stamp Duty.
Using the same example, with relief the Stamp Duty is calculated on the average consideration of £175,000 for each dwelling and the combined Stamp Duty liability would then be £12,500. With larger numbers of dwellings purchased in the same transaction and higher values, the Stamp Duty savings can be considerable.
If MDR is claimed, there is an overriding minimum Stamp Duty payable of 1% per cent on the total consideration payable.
There is an alternative to claiming MDR, should a property investor acquire six or more residential properties together as this can be treated as an acquisition of commercial property with the much lower commercial property Stamp Duty rates applying.
If an investor acquires a block of eight flats for £1,250,000 per flat, the Stamp Duty at commercial rates would be £489,500. This compares to Stamp Duty at residential rates with MDR of £850,000 (and £1,413,750 without MDR). It should be noted that MDR does not apply to the acquisition of dwellings subject to a lease granted for an initial term of more than 21 years.
Land and Buildings Transactions Tax (LBTT) applies for property purchases in Scotland and 3% increased rates of LBTT were introduced from 1 April for acquisitions of dwellings in similar circumstances as for Stamp Duty.
Taking the first example above, LBTT would be £12,600 for two unconnected purchases, but £11,700 for a multiple purchase with the relief applied. It should be noted that the overriding minimum for MDR is 25% of the Land and Buildings Transactions Tax payable without MDR. The potential to treat the acquisition of six or more residential properties as a commercial purchase also applies for LBTT.