Frequently Asked Business Question:
I have been given the opportunity to acquire a small portfolio of 4 residential buys to let properties from a distressed seller. The properties are all let out and are valued at £350k, £275k, £250k and £225k. I understand I have to pay a 3% supplementary stamp duty charge however will this be treated as a single purchase of £1.1m and stamped accordingly?
This relief measure creates a temporary nil rate band of £500k to transactions taking place within this time period and HMRC will apply relief to transactions liable to higher rates of stamp duty. People that already own property however will have to pay 3% stamp duty on the first £500k of the purchase price of an additional property. In your particular circumstances however, you can make a claim for “Multiple Dwellings Relief (MDR)” which allows the stamp duty calculation to be based on the average property price within the portfolio that you are acquiring rather than applying a stamp duty rate to the total consideration of £1.1m. This should result in a lower overall stamp duty charge as part of the consideration should fall into lower bands of stamp duty.
Based on a total consideration of £1.1m therefore, in the absence of MDR and taking into account the Covid relief initial threshold, the default position would normally be that the first £500k is charged at 3%, the next £425k would be charged at 8% and the balance of £175k would be charged at 13%. This would result in total stamp duty of £71,750.
However, applying an MDR calculation the average property price within the portfolio is £275k and therefore the stamp duty on each property on an average basis is 3% of £275k which equates to £8,250. Four properties at £8,250 give a total stamp duty liability of £33k which represents a £38,750 or 54% reduction in the stamp duty cost as compared against the default position without Multiple Dwellings Relief. Multiple Dwellings Relief, therefore, is a very valuable relief from stamp duty when you are facing the prospect of acquiring a portfolio of properties in a single transaction from the same unconnected third party. It is estimated that only one-third of qualifying MDR stamp duty claims are actually made due to ignorance of the relief by buyers and more worryingly professionals assisting buyers with property purchases.
You should also consider using a company for this purchase because relief from the 15% stamp duty rate is available for the corporate acquisition of buy to let portfolios provided, they continue to be let for a period of at least 3 years. The use of a company would substantially reduce the annual tax charge on the rental profit.
Finally bear in mind that higher value properties may include considerable contents that are not liable to stamp duty and if possible, therefore try and ascertain how much the contents within each property are valued as these will be exempt from stamp duty further reducing the liability.
For more information and/or assistance, please do not hesitate to contact me at the email address below or phone our Tax Team