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Details of a new SDLT relief for purchasers of residential property who are acquiring a number of properties that are "connected" or acquiring a portfolio of properties either by outright purchase or through a creative contract methodology was announced in the March 2011 budget. The actual relief will be implemented through the Finance Act (once it has received Royal assent) and currently the only details available are set out in the Finance Bill.

Without applying this new relief where multiply residential properties are involved then SDLT is payable on the whole transaction and the transaction is viewed as a single transaction. This often means that SDLT is payable at the rate of 4% or 5%.

By applying this new relief, the average value of each individual property is taken, and very simply the total purchase price payable for all the properties is divided by the number of properties involved which will give you the average price per property, and the SDLT payable on each property will then be at the rate applicable to the average price. This is subject to a minimum rate of 1% applying.
This therefore means that the rate of SDLT payable on a portfolio acquisition can very often be reduced to 1%. Please note that if the average price drops below the SDLT threshold ie, less than £125,000 per property, then 1% will still be payable.

This is a new relief that is available and it is anyone's guess how long this relief will be available for. It can easily be withdrawn in the future, and in the circumstances whilst in many cases where 4% or 5% SDLT was payable on a portfolio acquisition, to avoid this an option methodology was used, it may well be advisable to use a contract methodology ie, a delayed completion contract, and to pay the SDLT up front, on the basis that the benefit of the lower rate of SDLT can be paid now, but it may disappear in the future.

Please note with regard to this new relief:-

1. There are a number of exclusions where the relief will not apply.
2. If there is a change of circumstances within 3 years of the effective date, that would create a higher rate of SDLT, then additional tax will become payable in the future. For example, if residential properties are acquired but subsequently converted in whole or in part to commercial premises (for example a shop) then this will trigger a further tax payment due if it happens within 3 years. There are a large number of circumstances where this could apply, so it is important not to make any changes for the 3 year period to avoid this additional tax charge.
3. Please note that the freehold reversion of properties which are subject to long Leases at a ground rent are not eligible for this relief.
4. Please also note that if there is a mixture of residential properties (which are eligible) and other properties which are not eligible (for example, shops underneath residential flats) then the overall purchase price needs to be apportioned on a fair and reasonable basis between those premises which are eligible for the relief and those that are not. In these circumstances calculating the Stamp Duty Land Tax actually payable can be quite complicated and you should seek detailed advice if you are contemplating a transaction of this nature.

This newsletter should not be regarded as constituting legal advice in relation to particular circumstances. This newsletter is merely a general comment on the relevant Law. If specific advice is required in connection with any of the matters covered by this newsletter, please contact the office on 01245 216 050 for assistance or email dean@alexanderlawyersllp.com

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