Linked transactions can save stamp duty land tax (SDLT)

The issue

In general, SDLT linked transactions rules were introduced to stop a purchaser paying too little SDLT. Without these rules it would be possible to break up a transaction into smaller amounts and benefit from lower rates.

Example

Julia pays her uncle £500,000 for half his house in June and then buys the other half of the house in July for a further £500,000. Ignoring the rules on linked transactions, Julia would pay SDLT on two £500,000 transactions as follows:

£0 up to £125,000
£2,500 between £125,000 and £250,000
£12,500 between £250,000and £500,000

Each £500,000 transaction would incur £15,000 of SDLT, making £30,000 in total.

Linked transaction rules come into play when property is transferred between the same buyer and seller (or people connected to them) as part of the same scheme or arrangement. When they apply, rates are applied to all consideration as if only one transaction is being considered. Therefore, the above transactions would be taxed as a single £1m transaction as follows:

£0 up to £125,000
£2,500 between £125,000 and £250,000
£33,750 between £250,000 and £925,000
£7,500 between £925,000 and £1m

Linked transaction rules therefore have the effect of increasing SDLT payable from £30,000 to £43,750.

When linked transactions reduce SDLT

Although linked transactions rules are meant to be bad, they do not always work this way.

Multiple Dwellings Relief (MDR) can apply across linked transactions, so as to reduce the SDLT that would be payable if the transactions were not linked.

Example

Assume a company acquires a £500,000 residential property and a £100,000 residential property in two unlinked transactions. SDLT would have been £30,000 for the £500,000 property (this time including the 3% surcharge) and £3,000 for the £100,000 property. Therefore, total SDLT would be £33,000.

If the transactions were linked, then it would be possible to make an MDR claim across the linked transactions based on calculating SDLT on the average property value (here it is £300,000) and then multiplying by the number of properties:

£3,750 up to £125,000
£6,250 between £125,000 and £250,000
£2,500 between £250,000 and £300,000

Next, take this total of £12,500 and multiply by two to give £25,000, which is a saving of £8,000 from the £33,000 above.

Forbes Dawson view

Although we cannot choose when something is linked and when it is not, because the linked transactions rules are anti-avoidance legislation, they are widely drafted. This means that more transactions may fall within these rules than you would first imagine. For example, where a property developer gives a purchaser preferable terms for multiple properties acquired over a period of time, then it may be possible to benefit from the interaction between MDR and linkage in the way shown above. When a buyer has pledged to buy a certain number of properties over a period for a bulk discount, then the transactions will almost certainly be linked.

 

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