SDLT: Muddled guidance leads to excess tax

When two or more “dwellings” are purchased in a single transaction, multiple dwellings relief (MDR) can be claimed to reduce the amount of stamp duty land tax (SDLT) payable.

Overpayments possible

Taxpayers may have overpaid their SDLT liabilities due to HMRC’s unclear guidance. If MDR and either of the surcharges apply, it is unclear whether these charges satisfy the minimum charge provisions for MDR.  

The two surcharges are:

• 3% for additional dwellings, known as the higher rate charge (HRC)
• 2% non-resident surcharge.

If eligible, the HRC can be reclaimed through an interactive online form which is posted to HMRC. However, it may not be clear to taxpayers and/or advisers that in some instances the reclaimed amount will be part of the surcharge rather than the full amount.

Multiple dwellings relief

This relief enables the purchasers to apply SDLT to the mean value of the purchased dwellings (ie splitting consideration equally over the total number of dwellings purchased in the same transaction), as opposed to paying the SDLT on the actual value associated to each of the properties.

The definition of a dwelling is not included within legislation but it is accepted as being a building or part of a building which accommodates all of a person's basic domestic living needs. By requiring the building or part of a building be suitable for use as a “single” dwelling, the statutory language emphasises suitability for self-sufficient and stand-alone use as a dwelling.

To accommodate a person’s basic domestic needs, a dwelling should include a place to sleep, eat, to attend to one’s personal and hygiene needs; and to do so with a reasonable degree of privacy and security. There has been a number of cases heard in the courts to determine the meaning of a ‘dwelling’.

The MDR requires an overriding minimum rate of 1% SDLT to be paid of the total amount associated with the purchase of all the dwellings.

Eighteen self-contained flats are purchased in a single transaction on 24 June 2021 for £1,948,800. The value per dwelling is £108,267, and this is the value used where MDR is claimed. The value of each dwelling exceeds £40,000, but is below the minimum rate threshold of £500,000 (as applied at that date), therefore, the minimum 1% SDLT charge would apply.

Underlying SDLT:  (£1,948,800 @1%)                 £19,488

3% HRC:               (£1,948,000 @ 3%)                 £58,464

The total SDLT liability could be either:

• £77,952 (£19,488 + £58,464); or
  • £58,464

Outcome

HMRC has confirmed that the SDLT liability in this instance is £58,464 as this satisfies the 1% minimum tax rate.

This means that many taxpayers will have overpaid their SDLT liabilities as it was not clear that the 1% minimum could be met by another element of the legislation.

What if you have overpaid?

The good news is where a taxpayer has overpaid SDLT they can make a refund claim to HMRC up to 12 months from the date of purchase.

If this window has lapsed, it is possible to extend it to up to four years, but the taxpayer will likely need assistance from an SDLT specialist, as it can be a complex area.