Multiple dwellings relief ("MDR") was abolished from 1 June 2024 (as we discussed in a previous article). Now the Government has increased the Stamp Duty Land Tax additional rates (paid on certain purchases of residential property, including by buy-to-rent landlords) from 3% to 5% from 31 October 2024 (as we discussed in our comments on the recent Budget). To add to this, current SDLT residential rates are already slated to increase (to their rates pre-8 July 2020) from 1 April 2025.
This all comes on top of the SDLT non-resident 2% surcharge applicable (very broadly) to overseas purchases (or purchases by UK close companies controlled by overseas persons) of residential property, increasing the maximum SDLT rate to 19%!
However, what that means for landlords, developers and even local authorities is not always clear cut and the rate of SDLT payable could look very different when comparing the acquisitions of:
- a block of 20 flats;
- 5 terraced houses;
- 4 flats and a ground floor shop;
- a student accommodation block; or
- a large country house incorporating a bed and breakfast.
Therefore, it is more important than ever to properly consider how a property being acquired might be treated for SDLT purposes (and for Scottish LBTT and Welsh LTT purposes, with which the SDLT rules overlap to an extent).
What Different Treatments Might Apply?
Going forward, many commercial landlords and developers will be looking to rely on the "six or more" rules under which the purchase of six or more separate residential dwellings as part of a "single transaction" is treated as non-residential SDLT rates (which are likely to be significantly lower). HMRC has previously indicated that the "six or more" rule can apply to transactions completing in stages under a single contract (or even related contracts). However, there is no formal guidance and there are many technical difficulties in determining the ambit of the "six or more" rule.
While there seems no indication as yet of any proposal by HMRC to abolish the "six or more" rule, it is worth noting that the idea has been mooted for Welsh Land Transaction Tax.
If the "six or more" rule does not apply, this does not mean that all property that is in a broad sense "residential" are treated the same. Certain types of property, such as hotels, inns and "similar establishments", are deemed non-residential. The recent case of Anne-Marie Hurst v HMRC [2024] UKFTT 00540 (TC) illustrates both the fact sensitivity of these types of cases, and underscores the general point that all that is required for non-residential rates to apply is partial non-residential use (rendering the property "mixed use"). In some cases (and subject to broader technical considerations), the "mixed use" rules might provide an incentive to "bundle" property disposals.
However, there is still much uncertainty here, including whether and when "serviced apartments" and similar accommodation might fall within this definition.
Equally, there is (as has been proved by a flurry of recent cases, such as Suterwalla v HMRC [2024] UKUT 00188 (TCC)) much potential to debate what is really mixed use. What level of commercial activity is required to render part of a property non-residential and justify applying non-residential SDLT rates to the whole? This is very much a live, and fact sensitive, area.
Finally, if non-residential rates are not an option, it is still important to consider whether SDLT additional rates and the SDLT non-resident surcharge will apply. They do not automatically apply to all residential property. A key exception from both that has now increased in importance is the exemption for student accommodation. While HMRC does have some guidance on what student accommodation is, the exact borderline and the treatment of student accommodation being constructed remains difficult to determine.
Where does this leave us?
SDLT is only getting more complex and becoming more of a significant potential liability, particularly for acquisitions of residential property. The viability of acquisitions, and even development projects, can hinge on the SDLT costs. While SDLT does have a number of reliefs that can apply to acquisitions of residential property, these are limited in practice. Therefore, exactly what SDLT rates apply to a transaction is an important question that should be considered in advance of any significant acquisition.
