The change rectified the situation whereby if an investor bought a property containing several flats from the same seller, the rate of SDLT would be determined by the total amount payable. For example, if there were five flats at £250,000 each then the total purchase cost would be £1.25m.

SDLT would then be charged at 5%, because the total price exceeded £1m. The buyer would therefore be paying £12,500 tax on each flat.

The new system is far more generous. It allows the rate of SDLT to be determined by the average cost of each unit.

In the example given above, the average cost of each flat is £250,000, which falls
within the 1% band. The tax on each one is therefore reduced to only £2,500 –
five times less than under the old system.

There are conditions, of course. The relief only applies to properties that consist of two or more dwellings, or land on which a property consisting of two or more
dwellings is being constructed or adapted.

It may not apply to bedsits because HM Revenue & Customs considers that for a unit to be classed as a single dwelling, it must be self-contained. That view could be open to challenge,however, and there is case law to suggest that the courts may be prepared to consider a unit as a separate dwelling even if it is not self-contained.

There are some other important provisos. The rate cannot fall below 1%, even if the average price of the each dwelling is less than the £125,000 threshold, and the relief doesn’t apply to properties that are subject to a lease or sublease granted for an initial term of more than 21 years.

The relief may also be clawed back if certain changes are made to a property within three years of purchase. For example, if the relief is granted on a property consisting of several flats, it may be taken back if the flats are later converted into a single unit.

The relief may not apply in all cases but where it does, it could provide substantial
savings in SDLT.

Please contact us if you would like more information about the issues raised in this article.

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