Richard Turner – Senior Manager
As the rules were initially drawn, someone buying a property which counts as two dwellings would be liable to an extra 3% SDLT on the whole price above the ‘normal’ SDLT that would be due. This was the case even if it was going to be the buyer’s only property or if it was replacing the buyer’s only or main residence.
It will not always be straightforward to know if a property counts as a single dwelling or as more, nor whether the surcharge applies.
Fortunately those rules were amended. A new test has been introduced with retrospective effect. This test applies where a single transaction comprises two or more dwellings. The amended rules apply where:
- On making a just and reasonable apportionment of the price, at least two thirds of the price is paid for the main dwelling.
- The subsidiary dwelling is part of the same building as the main dwelling or is within the grounds of the main dwelling.
It is not relevant how the subsidiary dwelling is to be used. Nor is there any requirement as to planning conditions requiring the subsidiary dwelling to be occupied or disposed of in limited ways.
Multiple dwellings relief
There is an important point about the application of Multiple Dwellings Relief (MDR) in transactions involving several dwellings. MDR works by calculating the SDLT on each dwelling by reference to the average price of all the dwellings. Savings in SDLT can therefore be achieved due to the multiple use of the lower rates in the SDLT bands. It seems, on a close reading of the rules as they have been amended, that in some cases (including many purchases of properties with granny flats) MDR can be obtained without the surcharge being due.
An SDLT (stamp duty land tax) Example
There are now different amounts of SDLT that can be due on purchases of residential property depending on the exact circumstances. To illustrate this, let’s take different purchases, all for £1,000,000.
Based on someone buying what will be their only property, or buying a house which counts as a replacement of their only or main residence, so that the surcharge does not apply. The SDLT on a price of £1,000,000 is £43,750.
A single purchase
A single purchase for £1,000,000 might include some non-residential property, such as:
(a) a house with land that is not part of the garden or grounds but which is let out to a farmer or
(b) a property with a commercial property. In this circumstance, non-residential slice rates of SDLT apply and there is no question of the surcharge applying. SDLT will be £39,500.
A purchase with multiple dwellings
Under the amended rules it is possible for someone to buy in a single transaction a property which counts as two dwellings and not pay the surcharge.
For this to be the case, the following subsidiary dwelling test is applied:
i) The less valuable dwelling must be a part of the same building as the more valuable one (or in the grounds of the more valuable one); AND
ii) The more valuable property must be 2/3 or more of the value (so over £666,667 in the case of a purchase for £1,000,000).
For the surcharge not to be due, the property might be the buyer’s only property, or he might be replacing an only or main residence by moving into the more valuable of the two dwellings being bought.
On the face of it, the SDLT in this example would be £43,750.
However if MDR is claimed without incurring the surcharge then the SDLT is £30,000.
So a set of purchases for £1,000,000 can incur different amounts of SDLT.
It will not always be straightforward to know if a property counts as a single dwelling or as more, nor whether the surcharge applies so it is recommended you seek professional advice.