New rules allowing relief from SDLT where multiple residential properties are acquired are now in force. The rule applies to reduce the applicable rate of SDLT to 1% where the tests for claiming the relief are met:

Current/new rules

Where transactions are linked, under the current rules, the rate of SDLT payable on the acquisition of multiple dwellings is determined by the total value of the property purchased.

From Royal Assent (July 19 2011), where the new relief is claimed, the rate of SDLT payable will be determined by the average value of the dwellings, i.e. the total value of all of the dwellings divided by the number of dwellings. This is subject to a minimum SDLT rate of 1 per cent (see example below):

Pre Royal Assent transactions

The relief does not apply if a transaction is linked with any transaction with an effective date before the date of Royal Assent.

There are two exceptions to this rule, (1) if there is an option binding the grantor to enter into the later transaction and (2) if there is a right of pre-emption restricting the right of the grantor to enter into the later transaction.

Claiming the relief

It must be claimed in the SDLT return on any "relevant transaction". The relief code is likely to be "33".

What is a relevant transaction?

Defined as:

• a transaction, the main subject-matter of which includes interests in more than one dwelling, or
   
• a transaction which is one of a number of linked transactions, the main subject-matter of which includes interests in at least one dwelling and where one or more transactions linked to it includes interests in at least one other dwelling.

Exclusions from application of relief

The relief will not apply where group relief (Finance Act 2003 Sch.7) or charities relief (Finance Act 2003 Sch.8) is available or has been withdrawn.

Meaning of "dwelling"

Unfortunately, the statutory definition does not define "dwelling" precisely.  For the purposes of this relief, a "dwelling" means a building or part of a building which is suitable for use as a single dwelling or which is in the process of being constructed or adapted for such use.

Land that is, or is to be, occupied or enjoyed with the dwelling such as a garden or grounds (including any building or structure on such land) and land that subsists, or is to subsist, for the benefit of the dwelling, is taken to be part of the dwelling.

The tax calculation

The chargeable consideration for a relevant transaction is apportioned between:

• the consideration attributable to interests in dwellings, and
   
• the remaining consideration (if any). The consideration must be apportioned on a "just and reasonable" basis. That means two different rates of SDLT may apply to a transaction.

Example

If your client buys 10 flats for £1.2m, presently the rate of SDLT would be 5 per cent as the price is more than £1m. The amount of SDLT payable would be £60,000. Under the new rules, the average price is £120,000. That means the 1 per cent rate applies and £12,000 would be payable. This results in a saving of £48,000.

"Off plan" transactions

The relief can still be claimed even if construction or adaption to residential use has not yet commenced by the effective date of the transaction.

Anti-avoidance provisions

Under certain circumstances, any relief claimed will be clawed-back, as follows: when the subject matter of the transaction ceases to include dwellings or the number of dwellings is reduced with the result that the rate of tax should have increased. The reduction in the number of dwellings increases the average price and may mean a higher rate of SDLT applies. The claw-back period is up to three years after the effective date of the transaction or, if earlier, the date on which the purchaser disposes of his interest in a dwelling or dwellings that were part of the original transaction.

In these circumstances, a further SDLT return will need to be submitted.

Further information

For further information please contact Deborah Lovell, Partner, or your usual contact at Anderson Strathern.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.