The introduction of a new SDLT relief for multiple purchases in the residential market is intended to boost the private rented sector.

There is a new SDLT relief for purchasers who buy more than one residential dwelling under one transaction. Where the relief is claimed, the rate of SDLT is determined by the mean consideration rather than the aggregate consideration, subject to a minimum rate of 1 per cent. This relief took effect for purchases completed (or substantially) performed after 18 July 2011. This relief is primarily aimed at investors in the residential property market and the Government’s aim is to promote the supply of private rented housing.

Usually the more you pay in total on a property deal, the higher the rate of SDLT that is charged. Following the introduction of the new 5 per cent top rate in April 2011 the rates of SDLT for residential properties are:

Click here to view the table.

If you purchase one house for £200k then you will pay SDLT at the rate of 1 per cent - but if you bought two houses together for this price in the same deal then you would expect to have paid 3 per cent SDLT on the £400k paid in total. However, now, if you claim the new relief, the rate of SDLT on the purchase of the two houses would be only 1 per cent. This is because the SDLT rate is determined by reference to the average price – ie, £200k – rather than the total or aggregate price.  

The amount of SDLT saved can be significant. To take an extreme example, imagine an investor buys five flats from the developers of a new-build block of flats. Note that the relief can be used for purchases off plan. Four of the flats cost £200k but the fifth is the penthouse costing £400k. The total price is £1,200,000 so without the relief the investor would be paying 5 per cent SDLT – ie, £60,000. However, if the relief is claimed then the mean average price paid per flat is £240k so only 1 per cent SDLT. This gives an SDLT charge of just £12,000 – a saving of £48,000.

If the purchase includes both residential and non-residential elements then the bulk purchase relief rate applies to the residential part of the deal and the standard commercial rate applies to the non-residential element. With these mixed transactions the price has to be apportioned on a just and reasonable basis. This would be relevant to the purchase of a ground floor retail unit with two or more flats above. The relief may also apply, for example, on the purchase of a large agricultural estate where the farmhouse and a number of farm cottages are bought together with the farm land and farm buildings.

You can claim the relief on the multiple purchase of dwellings even though they are tenanted – just so long as the leases to which the purchases are subject are for no more than 21 years. So an investor buying a block of four flats subject to assured shorthold tenancies could claim the relief, but not if the flats had been subject to 99 year leases.

There is one potential pitfall to watch out for when claiming this new SDLT relief. If there is a change of circumstances which reduces the number of dwellings within three years (but prior to any disposal of the property) then the relief is withdrawn and the SDLT falls back into charge. So the relief will not apply where houses are to be demolished to make way for a non-residential building, or where adjoining houses are to be knocked through into one, or on the conversion of a block of flats into a hotel.

The rules on SDLT for residential property have changed this year with the introduction of the new 5 per cent top rate in April and this bulk purchase relief in July. For those that qualify this new SDLT relief may be attractive. It remains to be seen whether tinkering with tax rates in this way provides any significant boost to the private rented sector as hoped for by the Government.