Investing in real estate can be a lucrative venture, but it often comes with substantial costs such as the Stamp Duty Land Tax (SDLT). However, there’s a lesser-known strategy that can help you maximize your savings when buying six or more residential properties in a single transaction.
In this blog, we’ll delve into the concept of a “single transaction” and how it can significantly impact your SDLT liability.
What Counts as a “Single Transaction”?
The term “single transaction” refers to the purchase of six or more individual dwellings pursuant to a single contract, even if these acquisitions complete at separate times. Here’s what you need to know:
- A single transaction usually involves a single set of missives (contract) or an overarching agreement.
- It’s not limited to a single interest in land (e.g., a single title number) and can involve multiple properties under various registrations.
- While a single transaction often involves the same seller and purchaser, it can encompass multiple sellers depending on the contractual arrangements.
- Importantly, a “single transaction” has a narrower meaning than a “single deal.” A single deal could consist of either a single transaction or a number of linked transactions.
It’s crucial to distinguish between a single transaction and linked transactions. Linked transactions are part of a single scheme, arrangement, or series of transactions between the same seller and buyer or persons connected with them. The “6+” rule applies only to purchases as part of a single transaction, not linked transactions.
When Is SDLT Payable?
SDLT payment can get complex with multiple completion dates, especially for staged purchases in single and linked transactions. Here’s how it works:
- In a single transaction completed in stages, once a substantial amount of the overall price is paid or land transferred, the entire transaction is substantially performed, and SDLT on the full price is reportable and payable.
- For linked transactions, each individual transaction is assessed for substantial performance on its own merits. Completing or substantially performing one transaction should not trigger SDLT on other properties.
Maximizing Savings with SDLT
The non-residential rates for SDLT often result in lower payments, making it a worthwhile consideration. It’s essential to compare the total SDLT cost and evaluate it against using multiple dwellings relief. In most cases, running both SDLT calculations is wise to determine the most cost-effective approach.
For example, if you were to purchase six flats in a block, each worth £500,000, you have multiple options
You can use whichever SDLT vehicle you choose to give yourself the most efficient outcome.
Standard residential SDLT is worked out against this table:
|Property Price||SDLT Rate||Additional Rate|
|Up to £250,000||0%||3%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5m||10%||13%|
So for this purchase of 6 flats the total consideration is used which is £3,000,000 and the SDLT would be £361,250
If you use the MDR rules which I covered in a previous video you would take the £3,000,000 and divide it by 6 giving you the SDLT of each flat at £500,000 So each flat would cost £27,500 in SDLT making the total £165,000
Now if you use the non-residential rates:
|Property Price||SDLT Rate|
|Up to £150,000||0%|
|£150,001 – £250,000||2%|
The total SDLT would be £139,500 on a £3,000,000 property deal. As you can see the standard residential amount would be £361,250 or you could save by using MDR where you would pay the much lower amount of £165,000. But by far the best savings come from using the non-residential rates where you would only need to pay £139,500 which is a staggering £221,750 saving vs paying the standard amount.
In conclusion, when buying six or more residential properties in a single transaction, you have the opportunity to optimize your savings on SDLT by choosing the right tax rate. Understanding the nuances of “single transactions” and their benefits can make a significant difference in your property investments. So, make an informed decision and reduce your SDLT costs while expanding your real estate portfolio.