Workarounds For Multiple Dwellings Relief Abolishment

(Strategies Using SDLT Reliefs & Classifications)

Section Summary: With the abolishment of Multiple Dwellings Relief (MDR), investors and homebuyers are exploring alternative strategies to reduce their Stamp Duty Land Tax (SDLT) costs.

Key Points:

  • Bulk purchases of six or more properties can be treated as non-residential, attracting lower SDLT rates.
  • Mixed-use properties are taxed at non-residential rates.
  • Properties not fit for residential use due to their condition may qualify for non-residential SDLT rates.

Main Principles: The main principle is to utilise the classification of properties (bulk, mixed-use, or non-residential due to condition) to access lower SDLT rates, compensating for the loss of MDR benefits.

The abolishment of Multiple Dwellings Relief (MDR) means investors and homebuyers are looking for other ways to reduce their Stamp Duty Land Tax (SDLT) costs. One effective approach is to make use of non-residential rates of SDLT through various reliefs. Here’s how you can do this:

  • Buy More Than Six Properties in One Transaction
  • Mixed-Use Transactions
  • Non-Residential Assessment Due to Property Condition

Buy More Than Six Properties in One Transaction

(Strategies Using SDLT Reliefs & Classifications>Workarounds For Multiple Dwellings Relief Abolishment)

Buying six or more properties together can lower Stamp Duty Land Tax (SDLT) by qualifying the transaction as non-residential, which has lower tax rates than residential transactions.

Since Multiple Dwellings Relief (MDR) is no longer available, investors are looking at different ways to lower their Stamp Duty Land Tax (SDLT) bill. One approach is to buy properties together as a group and make use of linked transactions. If you buy six or more properties in a single deal, you could pay SDLT at the lower non-residential rates.

Understanding Linked Transactions

Linked transactions refer to multiple property purchases that are connected by the buyer, seller, or other factors, and are treated as a single transaction for SDLT purposes. This can significantly impact the SDLT calculation.

Bulk Purchases and Non-Residential Rates

  • When six or more properties are bought in a single transaction, SDLT is calculated using non-residential rates, which are generally lower than residential rates.

Property Syndicates Explained

  • A property syndicate is a group of investors who pool their resources to buy properties together. This collective approach allows investors to undertake larger transactions, share costs, and potentially reduce SDLT liability.

Example: Syndicate Purchasing Six Apartments

Imagine a property syndicate decides to buy six apartments from a builder, each valued at £350,000.

Calculations for Different SDLT Approaches

  1. Six Properties as One Full Transaction (Treated as Residential):
    • Total value: £2,100,000
    • SDLT: Calculated at residential rates with a 3% surcharge for additional properties.
    • Total SDLT for all six properties: £226,250
  1. Six Properties Treated with Multiple Dwellings Relief (Despite its Abolishment):
    • Total value: £2,100,000
    • Total SDLT for all six properties: £93,000
  1. Six Properties Treated as Non-Residential for SDLT Purposes:
    • Total value: £2,100,000
    • SDLT: Calculated at non-residential rates.
    • Total SDLT: £94,500

Differences Between the Approaches

  • Residential Approach: This method generally results in the highest SDLT due to the application of residential rates and the additional 3% surcharge. Total SDLT for all six properties: £226,250
  • MDR Approach (Hypothetical since Abolished): Previously allowed for a potentially lower SDLT by averaging the value of the properties and applying residential rates, resulting in £93,000 for six properties.
  • Non-Residential Approach: By treating the transaction as non-residential, the SDLT is significantly reduced, in this example, to £94,500, demonstrating a way to minimise SDLT liability in the absence of MDR.

Linked Transactions

(Strategies Using SDLT Reliefs & Classifications>Workarounds For Multiple Dwellings Relief Abolishment)

Linked transactions involve multiple property deals connected by the same parties or arrangements, and SDLT is calculated on their combined value, potentially increasing the tax rate.

Linked transactions occur when:

  • There are two or more property transactions involving the same buyer and seller, or people connected to them.
  • These transactions are part of a single arrangement, scheme, or a series of transactions.

When transactions are linked, SDLT is calculated on the total value of all linked transactions. This could result in a higher SDLT rate than if the transactions were treated individually.

Connected Persons in the Eyes of HMRC

HMRC considers transactions linked not just when they involve the direct buyer and seller, but also when they involve ‘connected persons’. These can include:

  • Family members such as siblings, parents, grandparents, spouses, or civil partners.
  • For businesses, connected persons include business partners and their relatives, as well as connected companies or groups of companies.

Types of Linked Transactions

  • Single Arrangement Transactions: Transactions are linked if they’re part of the same deal, even if documented separately. For example, if a house and its garden are sold to related buyers as part of one deal, these transactions are linked.
  • Series of Transactions: Sales followed by related sales that are part of a series are considered linked, regardless of the time between transactions.

Mixed-Use Transactions

(Strategies Using SDLT Reliefs & Classifications>Workarounds For Multiple Dwellings Relief Abolishment)

Mixed-use properties, which combine residential and commercial spaces, can offer lower SDLT rates and potential tax benefits when properly classified.

Aside from buying multiple properties, focusing on mixed-use properties offers another way to potentially benefit from lower SDLT rates.

  • What Are Mixed-Use Properties?: These properties combine residential and commercial spaces. This could mean a building with shops on the ground floor and flats above or a property with a business on one side and a living area on the other.

Examples of Mixed-Use Properties

  • Shop with Flats Above: A common example where the ground floor is a retail shop and the upper floors are residential apartments.
  • Office with a Residential Area: A building that’s used as an office on weekdays but has a separate area where someone lives.
  • Farm with a Dwelling: A working farm that also has a house on the land where the farmer and their family live.
  • Pub with Owner Accommodation: A pub where the ground floor is the business and the upper floor is where the pub owner or manager lives.

Key Points to Remember

  • Group Purchases: Purchasing as a syndicate can lead to cost reductions on SDLT, either through bulk acquisitions or by investing in mixed-use properties.
  • Check Property Types: Ensure the properties you’re considering truly fit the mixed-use criteria to qualify for potential SDLT benefits.

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Impact of Non-Residential Classification on Linked Transactions

(Strategies Using SDLT Reliefs & Classifications>Workarounds For Multiple Dwellings Relief Abolishment)

If a property in a linked transaction is too dilapidated to be residential, the whole deal becomes mixed-use, potentially lowering the Stamp Duty Land Tax (SDLT) due to different tax rates for mixed-use properties.

Very Important. Seek Expert Advice. Should any property involved in a linked transaction be deemed non-residential because of its condition, indicating it is too dilapidated to serve as a dwelling, this significantly influences the situation:

  • Whole Transaction Becomes Mixed-Use: The entire linked transaction is classified as mixed-use. This classification comes into play because the transaction now involves at least one non-residential property along with any other residential properties.

Why This Matters

  • SDLT Rates: Mixed-use transactions can benefit from lower SDLT rates compared to purely residential transactions. This is because mixed-use properties are taxed differently, often leading to reduced costs.

Key Points to Remember

  • Assessment Is Crucial: Properly assessing the condition and classification of each property in a linked transaction is vital. A property that cannot be inhabited due to its condition could change the SDLT implications for the entire transaction.
  • Very Important. Seek Expert Advice: Given the complexities of SDLT and property classification, consulting with property tax experts or solicitors can help ensure that all factors are correctly considered and that you benefit from any potential reductions in SDLT.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.