Company Flat Purchases and Stamp Duty Land Tax

There is a lot of confusion surrounding the application of stamp duty land tax to companies buying flats as an investment. This is understandable given the complexity of the law in this area.

When a company buys a residential property for a price which exceeds £500,000.00 stamp duty land tax is chargeable at the higher or ‘super rate’ of 15% unless an exemption applies. One of those exemptions includes a purchase of property for investment for letting on a commercial basis.

So far so good. However, the exemption from the super rate does not exempt transactions from stamp duty land tax altogether and it is necessary to decide at what rate stamp duty land tax will be charged.

If the 15% super rate does not apply then as we are dealing with residential property the ‘surcharged’ residential rate would normally apply. This adds 3% on top of the standard rates of stamp duty land tax for each band. The standard rates progressively increase until the rate charged on that part of the price over £1,500,000.00 is 12% so that once the 3% surcharge is applied it is equivalent to the 15% super rate.

Multiple Dwellings Relief (‘MDR’) reduces the charge to tax where at least two dwellings are purchased. It does so by dividing the total price by the number of dwellings purchased to give an average price per dwelling. Tax is then assessed as if there were two separate purchases at that price meaning that tax is paid at a lower rate on each transaction. For example, two flats purchased together for £900,000 would normally result in tax of £62,000 but if MDR is claimed the average price is £450,000 per dwelling resulting in tax of £52,000 (2 x £26,000) a saving of £10,000.

If that was not enough there is a further rule to consider namely the rule that deems the purchase of more than 5 dwellings as a commercial property transaction.

The importance of this rule is that non-residential or commercial rates of stamp duty land tax are different from the residential rates so selecting which rates to apply can be critical to the amount of tax that you pay. For example, on the purchase of 10 flats for £1,000,000, it is better to claim multiple dwellings relief and pay the surcharged residential rates. Whereas on a purchase of 10 flats for £3,000,000 it is better to apply the non-residential rates to the total price.

The only thing which is clear is that stamp duty land tax and investment property acquisition is a minefield. Professional advice is essential. If you are looking for an investment property solicitor or would like help on stamp duty land tax or other commercial matters please contact Glyn Evans on 01934 637911, email evans@powellslaw.com or visit our website.

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