Take advice on the complexities of Stamp Duty
Stamp Duty Land Tax, aka SDLT, has become increasingly complex in recent years. The introduction of the surcharge rate of three per cent from April 1 2016 for the purchase of an additional dwelling and the additional surcharge of two per cent that was introduced in 2021, for nonresident purchasers, means SDLT can be both a high cost and tricky to navigate.
The good news is that HMRC has previously confirmed the availability of Multiple Dwellings Relief for subsidiary dwellings.
Broadly, a subsidiary dwelling is one located in the same building or garden/grounds of the main dwelling and the value is no more than a third of the overall purchase price, typically annexes or granny flats.
Where a property transaction includes a separate subsidiary dwelling, the surcharge rate of three per cent for additional dwellings will not apply, unless the acquisition is not a replacement of the purchaser’s main residence.
However, there was concern that the application of Multiple Dwellings Relief (MDR), which is available on the purchase of multiple dwellings, would trigger the three per cent surcharge rate.
However, HMRC have previously confirmed that where all the relevant conditions are met the application of MDR will not trigger the surcharge rate of
SDLT. When MDR applies, the SDLT rate is calculated on the average price of the dwellings being purchased. This can result in significant tax savings for a purchaser.
For example, a transaction for a property worth £1.5m at current SDLT rates would result in tax of £93,750 being payable. If the property had a separate dwelling such as an annex/granny flat which met the conditions to treat it as a subsidiary dwelling, then the SDLT payable could be reduced to £55,000.
On a less generous note, from April 1 2021, there was an additional two per cent surcharge rate for non-residents purchasing residential property in the UK. This applies to nonresident individuals, companies, partnerships, unit trusts as well as beneficiaries of life interest and bare trusts and some trustees.
Therefore, an individual could be subject to the three per cent surcharge for the purchase of additional dwellings as well as the two per cent non-resident surcharge; an effective five per cent rate on a transaction.
In late 2021, HMRC published a consultation document on proposed changes to SDLT rules and specifically MDR. Currently if a property is purchased which has any element of non-residential use or is not suitable for use as a dwelling then you don’t pay the higher residential rates of SDLT.
From the consultation document, HMRC are looking at how they can change that to remove the advantage that these properties have.
One of the proposed changes is that it would be required to split out the non-residential elements of the property and only pay the non-residential rates on that element.
There has been no correspondence from HMRC regarding any additional relief in SDLT so far.
The calculation of SDLT is complex and depends on the number of properties being purchased, whether the properties are residential, nonresidential or a mix, who is purchasing, how many dwellings are being purchased and many other factors.
It is worth getting professional advice to ensure you are paying the right amount of tax.