Reshma Johar looks at the stamp duty land tax position on acquisitions of residential properties and subsidiary dwellings.
This article focuses on residential single transaction purchases by individuals, which include a subsidiary dwelling (often referred to as a ‘granny flat’). How does this type of transaction interact with stamp duty land tax (SDLT)?
A brief recap
The SDLT 3% additional dwellings surcharge was introduced on 1 April 2016 and applies to purchases of additional dwellings as well as dwellings purchased by companies. There is also the new 2% non-resident surcharge which needs to be considered. A dwelling could include a second home, a buy-to-let property and a new main residence where the old main residence is still owned at the date of purchase.
If the single transaction purchase includes more than one dwelling, it is not possible to apply a combination of both the ‘standard’ SDLT rates and additional dwellings surcharge. Clarity on the nature of the transaction will be a ‘must’.
Interaction with the 3% surcharge
A single transaction purchase which includes another dwelling, such as a granny flat, will not be subject to the 3% surcharge only because the purchase includes a pair of dwellings, provided any additional dwelling meets the definition of a subsidiary dwelling. In this scenario, the purchaser will only be subject to the higher rates of SDLT if the purchaser already owns another dwelling and is not replacing a main residence.
If the subsidiary definition is not met, the 3% surcharge will be applied on the entire transaction even if the purchaser does not own any other dwelling or is replacing the main residence.
Interaction with multiple dwellings relief
Multiple dwellings relief (MDR) could be applied to a single transaction purchase by an individual, which includes another dwelling such as a granny flat. MDR is a useful relief, which provides purchasers with a saving by enabling each dwelling use of the SDLT nil rate band and lower-rate bands.
What is a subsidiary dwelling?
If one of the purchased dwellings (dwelling A) is subsidiary to another of the purchased dwellings (dwelling B), and the following two conditions are met, they will be treated as a single dwelling purchase for the purposes of the SDLT 3% additional dwellings surcharge (FA 2003, Sch 4ZA, para 5(5)).
- Dwelling A is situated within the grounds of, or is within the same building, as the other dwelling B.
- The amount of the chargeable consideration for the transaction, which is attributable on a just and reasonable basis to the main dwelling, is at least two-thirds of the amount of the chargeable consideration for the transaction, which is attributable on a just and reasonable basis to the following combined:
- dwelling A;
- dwelling B; and
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each of the other purchased dwellings (if any) which are situated within the grounds of or within the same building as dwelling B.
It may be possible to claim MDR if one or more separate dwellings are purchased, whether or not one or more of them comprise subsidiary dwellings (see HMRC’s Stamp Duty Land Tax manual at SDLTM09755). If MDR is claimed, the SDLT rates used on the transaction will depend first on whether the 3% additional dwelling surcharge or 2% non-resident surcharge (if relevant) applies.
Practical tips
When it comes to looking at dwellings forming part of a residential purchase, these tend to be points we should all keep in mind:
- What SDLT rates should be applied to the purchase? Do we need to consider the 3% additional dwellings surcharge or incorporate the 2% non-resident surcharge?
- Has a valuation been obtained for each element of the purchase?
- Can the dwellings clearly be identified as independent and separate areas? The dwelling should contain facilities to cook, sleep, live and wash, as well as having its own independent access.
- Can the purchase by an individual benefit from MDR?
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Are there six or more dwellings in the single transaction?
