SDLT on six or more properties in linked transactions
26th April 2023
Posted in Articles, Stamp Duty, Stamp Duty Land Tax by Andrew Marr
The issue
It is generally well understood that SDLT is charged at higher rates for residential property than for non-residential (or commercial) property. The top SDLT rate for commercial property is 5% for consideration over £250,000, while residential property is subject to the following rates:
• 0% up to £250,000
• 5% between £250,001 and £925,000
• 10% between £925,001 and £1,500,000
• 12% over £1,500,000
These rates are subject to a 3% (second home) surcharge and a 2% (non-resident) surcharge in certain situations and so the residential rates can be as high as 17%.
If six or more residential properties are included in a transaction, then non-residential rates can be used, even though all the property is residential. Often this rule will be academic because it will be preferable for a buyer to claim Multiple Dwellings Relief (‘MDR’) which will give a lower SDLT liability. It is perhaps for this reason that there is some confusion about how the ‘six property rule’ applies for linked transactions.
Linked transactions
Transactions are linked when they take place between the same seller (or persons connected with them) and the same purchaser (or persons connected with them) and are part of a single scheme. The basic rule is that SDLT is then calculated across the two transactions by reference to the subject matter of the two transactions and the liability is shared between the purchasers. One may therefore think that if there were six or more dwellings acquired across two transactions, then non-residential rates will apply. This is not the case, as the legislation is clear that the six or more dwellings need to be included in the same transaction.
Example
Brian acquires three rental apartments from a company for £3m and Brian’s company acquires three rental apartments off the same seller for £3m. In this case, the SDLT will be payable at residential rates on £6m and divided equally between Brian and his company (although MDR is likely to apply). If just Brian or his company had made the acquisition of all six properties then non-residential rates could have applied.
Forbes Dawson view
The ‘six or more dwellings rule’ will only need to be relied on when non-residential rates give a better result than making an MDR claim. Sometimes it will be possible to ‘merge’ transactions into one by having a single contract. Therefore, in the above example, it would have been beneficial if all the properties could have been acquired under a single contract, under which completion of all the dwellings must take place simultaneously. For a purchaser who enters into many different property transactions with unconnected vendors, it should theoretically be possible to structure these under a single contract and claim the ‘six or more dwellings rule’. However, there would likely be commercial issues in getting unconnected vendors to join together in a single transaction. The take home message is that the rule should can only be applied when there are more than six dwellings in a transaction.
