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A slice of good fortune for student and PRS investors? Impact of SDLT changes
Before 4 December 2014, the rate of SDLT applicable to a qualifying transaction in 'multiple dwellings' was determined by computing the mean price per dwelling and applying to the whole transaction the single SDLT rate applicable to a dwelling of that value. For example, the purchase of a block of 5 flats for £1.5m on which MDR was claimed gave rise to SDLT of £45,000, since the mean price per dwelling of £300,000 was in the 3% SDLT band. Had MDR not been claimed, the SDLT payable would have been £75,000 (since £1.5m was in the old 5% band for residential property).
Since there is no longer a 'slab-rate' of SDLT on residential property, MDR is adjusted in these circumstances so that it operates by computing the SDLT payable under the new rules on a single dwelling contained in the transaction, and then multiplying that by the number of dwellings involved. In the example above, the SDLT payable with MDR would now be £25,000. Of the £300,000 mean price per dwelling, the first £125,000 is free of SDLT, the next £125,000 is charged at 2%, and the remaining £50,000 is charged at 5%, resulting in a charge per dwelling of £5,000.
It was already the case that purchases of 6 or more dwellings in a single transaction are treated as 'commercial' rather than residential property and therefore subject to SDLT up to 4% on the whole consideration. This rule is not affected by the changes mentioned above. So, although the purchaser of a house for £1.5m would now pay SDLT of £93,750, a block of 6 flats bought for £1.5m would still only be charged at £60,000 (subject to any claim for MDR).
Because of the '6 or more dwellings' rule it will not always be beneficial to claim MDR despite the effects of the new rate regime. That is a reflection of the fact that once the price of a dwelling goes over £937,500 (which was in the old 4% band both for residential and commercial property), the new effective rate of SDLT under the residential rules will exceed 4%. A purchase of 6 flats for £6,000,000 in a single transaction would attract SDLT of £240,000 in the absence of MDR. Claiming MDR, it would now cost £262,500 in SDLT (6 x £43,750).
The changes in residential SDLT therefore mean it is even more important to analyse the SDLT position early on in a transaction when buying properties containing multiple residential units to ensure that the SDLT payment is correctly calculated, which may affect the commercial deal. This will have direct effect on the acquisition of blocks of student accommodation and PRS schemes, but should be considered whenever a residential element is involved.
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