Guidance on LTT (schedule 13) relief for acquisitions involving multiple dwellings.

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## LTTA/7035 Relief for acquisitions involving multiple dwellings

This relief is available where a taxpayer buys a number of dwellings in Wales from the same seller either in a single transaction with the same effective date or in a number of linked transactions (transactions are linked where they form part of a single scheme, arrangement, or series of transactions between the same buyer and seller or persons connected to them).

In applying for multiple dwellings relief, the taxpayer will need to apply the higher residential property rates where the transaction would be subject to the higher rates for residential property rules, or the main residential property rates in cases where the higher rates for residential property rules would not apply (i.e. a mixed use property transaction).

Where the relief is claimed, the amount of LTT which applies to the consideration attributable to interests in dwellings is determined by reference to the amount of the total consideration attributable to the dwellings, divided by the number of dwellings (to establish the mean consideration attributable to the dwellings). In the event that the amount of tax calculated by this method is less than 1% of the consideration given, a minimum amount of tax rule is triggered to ensure an effective tax rate of at least 1% is applied to transactions involving multiple dwellings.

The amount of LTT which applies to the consideration attributable to interests in land other than dwellings (if any) is the amount which would apply in the absence of the relief.

Superior freehold or leasehold interests in dwellings subject to leases granted for an initial period of 21 years or more are not eligible for relief.

The relief includes ‘off-plan’ purchases where construction or adaptation of the property for residential use may not have commenced by the effective date of the transaction.

Most purchases of multiple dwellings will be liable to the rates applicable to higher rates residential property transactions.

Multiple dwellings relief is a partial relief as an element of LTT will always be payable on the transaction. The relief code 50 should be used in the taxpayer’s return to claim the relief.

## LTTA/7036 Transactions to which relief applies

(paragraph 3)

### General rule

Relief may be claimed where the transaction is a ‘relevant transaction’. A relevant transaction is one where the main subject-matter consists of:

- an interest in at least 2 dwellings, or, an interest in at least 2 dwellings and other property (for example non-residential property)
- an interest in a dwelling, or an interest in a dwelling and other property, and that transaction is one of a number of linked transactions and the linked transaction included an interest in at least one other dwelling.

An ‘interest in a dwelling’ for the purposes of this relief is any chargeable interest in or over a dwelling; therefore, all the dwellings subject to this relief have to be in Wales.

### Exceptions and exclusions

Multiple dwellings relief cannot be claimed where the transaction could be eligible for relief for transactions entered into by persons exercising collective rights.

Furthermore, multiple dwellings relief is not available where group relief, reconstruction and acquisition relief or charities relief can be claimed for the transaction, even in the event that the relief is not claimed or is withdrawn.

Where the dwelling is subject to a lease which was granted with a term of more than 21 years, any superior interest in relation to that lease cannot treated as an interest in a dwelling for the purposes of the relief and that interest cannot therefore be included in the calculation of the number of dwellings acquired by the taxpayer.

The 21 year lease rule does not, however, apply when either:

- the seller is a qualifying body for the purposes of the relief applying to shared ownership leases

or,

- the transaction is made under a sale and leaseback arrangement, and
- the sale is the grant of a leasehold interest, and
- the leaseback element of that arrangement is relieved from tax by a claim to sale and leaseback relief.

###
Example 1

Mr A buys, from the same seller 5 interests in a block of 4 flats. He buys the leasehold on each of the 4 flats, each of which lasts for 99 years; he buys the freehold over the whole building which incorporates the 4 flats. As the leases have been granted for more than 21 years the superior interest, in this case the freehold, cannot be treated as an interest in a dwelling for the purposes of multiple dwellings relief and cannot therefore be included in the calculation of the number of dwellings acquired by the taxpayer.

###
Example 2

Ms B buys, from the same seller, 3 interests in dwellings. The first and second are leasehold interests with 95 years remaining in 2 flats that are not subject to any sub leases. The third is the freehold interest in a house that is subject to a lease to an unconnected third party that was originally granted for 125 years. Ms A has therefore acquired 2 interests to which the multiple dwellings relief can apply and 1 interest in a dwelling that is treated as other property for the purposes of this relief.

## LTTA/7037 Key terms and definitions

(paragraph 4)

‘Attributable’ means attributable on a just and reasonable apportionment.

The ‘consideration attributable to dwellings’ is for a single dwelling transaction the chargeable consideration attributable to that dwelling, and for a multiple dwelling transaction is the chargeable consideration that is attributable to the dwellings in total.

‘The remaining consideration’ is chargeable consideration for the transaction less the consideration attributable to dwellings.

A ‘single dwelling transaction’ is a transaction that has as its main subject-matter an interest in a single dwelling or an interest in a single dwelling and other property.

A ‘multiple dwelling transaction’ is a transaction that has as its main subject-matter an interest in at least 2 dwellings or an interest in at least 2 dwellings and other property.

Where a taxpayer is buying a property which comprises of a main house and an annex to claim multiple dwellings relief it is important that both the main house and the annex meet the criteria of being a dwelling. Further guidance is available at LTTA/8080.

## LTTA/7038 Calculation of LTT liability: Determining the tax related to consideration attributable to dwellings

(paragraph 6)

Where a claim to multiple dwellings relief (‘MDR’) is made, the tax due on a transaction will be the sum of 2 amounts: ‘the tax related to the consideration attributable to dwellings’ and, where relevant, ‘the tax related to the remaining consideration’.

The method for establishing this amount of tax due follows 4 steps:

- Step 1 – establish the amount of tax that would be payable on the consideration given for the total dwellings in Wales. The amount of the tax due is established by dividing the consideration by the number of dwellings acquired and then establishing the liability for that notional purchase of a single dwelling. The rates that apply for the purposes of this part of the tax calculation will generally be the higher rates for residential property transactions. The main residential rates should be applied to the dwellings in all other cases (i.e. where the dwellings are part of a mixed-use property transaction). Where 6 or more dwellings are acquired, the taxpayer can claim MDR and the total dwellings would be subject to higher residential rates. If MDR is not claimed then the total consideration would be subject to the non-residential property rates.
- Step 2 – multiply the amount of tax established under step 1 by the number of dwellings
- Step 3 – the amount established at step 2 will be the amount of tax that is payable for the acquisition of the dwellings (additional LTT may be due for the transaction if there is also remaining consideration that is part of the same transaction). However, where there are linked transactions related to dwellings step 4 must also be used
- Step 4 – the amount of tax established by step 2 must be multiplied by

CD ÷ TDC

where CD is the consideration attributable to dwellings for the relevant transaction, and,

where TDC is the total dwellings consideration.

The ‘total dwellings consideration’ is:

- for a transaction that is not one of a number linked transactions the consideration attributable to dwellings for that transaction
- for a transaction that is one of a number of linked transactions it is
- the total consideration attributable to dwellings for that transaction, plus
- all the other transactions that are linked transactions, plus
- so much of the chargeable consideration for any other linked transaction (whether or not relevant transactions) that is not included in either of the 2 amounts of consideration above, but that are attributable to for the same dwellings included in the calculations.

‘Total dwellings’ means the number of dwellings by reference to which the total dwellings consideration is calculated.

Where relevant the taxpayer must also give consideration to the minimum tax amount as where the amount of tax calculated above, is less than that amount, the LTT payable based on these calculation is replaced by that amount.

###
Example 1

Mr A buys 3 dwellings from B Ltd on the same effective date (1 May 2018). Mr A already owns his own home and the 3 dwellings are the first acquisitions as he builds a buy to let portfolio. He is therefore liable to the rates that apply to higher rates residential property transactions. Mr A and B Ltd completed a single contract for sale and acquisition of all three flats and the flats are individually priced in that contract at £80,000, £95,000 and £107,000.

As there are no linked transactions and no remaining consideration only steps 1 to 3 apply:

- Step 1 requires chargeable consideration to be divided by the number of dwellings. The relevant figures are; chargeable consideration - £282,000, the number of dwellings is 3. The averaged consideration for each dwelling is £94,000. The tax due on that amount is then calculated. Using the rates and in force at 1 April 2018 the liability is £2,820
- Step 2 requires the amount in step 1 to be multiplied by the total dwellings (that is the number of dwellings acquired in this transaction). The amount is therefore £2,820 x 3 = £8,460
- Step 3 – the tax liability is £8,460.

###
Example 2

B Ltd from example 1 above completes another block of flats and Mr A buys a further 2 flats in that block on 1 July 2019. The transactions in both examples 1 and 2 are, for the purposes of this example, linked transactions. The new flats cost £125,000 and £185,000 respectively. The example assumes that the tax rates and bands have not changed from 1 April 2018.

All 4 steps must be applied to the new transaction:

- Step 1 requires chargeable consideration to be divided by the number of dwellings. The relevant figures are; chargeable consideration - £282,000 + £125,000 + £185,000 = £592,000, the number of dwellings is now 5. The averaged consideration for each dwelling is now £118,400. The tax due on that amount is then calculated. The liability is £3,552
- Step 2 requires the amount in step 1 to be multiplied by the total dwellings (that is the number of dwellings acquired in this transaction). The amount is therefore £3,552 x 5 = £ 17,760
- Step 3 – the tax liability for the linked transactions is £17.760. As there are linked transactions the tax due on the current transaction must be calculated using step 4
- Step 4 – requires the amount of tax established by step 2 to be multiplied by CD/TDC. In this case the figure for CD is £310,000 (£125,000 + £185,000) and for TDC the figure is £592,000. The sum is therefore:

(310,000 ÷ 592,000) x £17,760 = £9,300

This is the sum of tax that should be self-assessed on the return for the second transaction acquiring the 2 new flats. The formula, where there is no remaining consideration, ensures that a further land transaction return is not required for the first transaction (in which the 3 flats were acquired) as the tax payable on the second return (£9,300) added to the tax self-assessed on the first return (£8,460) add up to the total tax payable for the 2 transactions (£17,760).

###
Example 3

Application of the minimum 1% tax charge rule - Ms C acquires from Mr & Mrs D two dwellings, and no other property, in a single transaction. The consideration given for the transaction is ££270,000. The dwellings have individual market values of £190,000 and £80,000. Ms C does not own any other dwellings and is to occupy the more expensive home as her main residence. The less expensive dwelling is in the grounds of the more expensive dwelling. The conditions for subsidiary dwelling exemption in the higher rates residential property transactions rules are met. The higher rates will not therefore apply to the transaction.

Using the various steps the liability would equal £0. This is because the average consideration given is £135,000 for the 2 dwellings and the applicable tax rate is 0%. However, the minimum tax rule will apply in this case as the LTT on the consideration given is less than 1% of that amount of consideration. The minimum consideration rule therefore means that the tax to be self-assessed is £2,700 (£270,000 x 1%). Had Ms C not claimed multiple dwellings relief the tax due would be calculated based on the main rates of LTT. She would, using the rates in force on 1 April 2018, have needed to self-assess her liability as £3,450 ((£0 to £180,000 x 0% = £0) + (£180,001 to £250,000 x 3.5% = £2,450) + (£250,001 to £270,000 x 5% = £1,000)).

## LTTA/7039 Calculation of LTT liability: Determining the tax related to the remaining consideration

(paragraph 7)

There will be times when the transaction entered into by the taxpayer is one in which both dwellings and other residential property that are not dwellings for the purposes of this relief and/or non-residential property. In such cases the taxpayer can still claim multiple dwellings relief in relation to the consideration given for the dwellings.

The consideration given for the other property must be calculated separately and added to the tax that is applicable to the dwellings.

Where the transaction relates to one that includes dwellings and other property that is also residential property; the rates applicable to higher rates residential property transactions will apply to the calculation of the liability due on the dwellings for the purposes of establishing the multiple dwellings liability, but the main rates will be used to establish the consideration on the other residential property that does not consist of dwellings. This is because the claim to multiple dwellings relief must consider the acquisition of the dwellings separately from the other property acquired. The same is true where the other property is non-residential.

‘The tax related to the remaining consideration’ is given by an apportionment of the tax that would have been due on the total transaction. That amount is multiplied by a fraction. The fraction is given by dividing the ‘remaining consideration’ by the total consideration. The calculation is slightly different if the transaction is one of a number of linked transactions.

The appropriate fraction is established using the formula:

RC ÷ (TDC + TRC)

where RC is the remaining consideration for the relevant transaction

where TDC is the total dwellings consideration, and

where TRC is the total remaining consideration.

The total remaining consideration is, for a transaction that is not one of a number of linked transactions, the remaining consideration. Where the transaction is one of a number of linked transactions, the total remaining consideration is the total of the chargeable consideration for all the transaction less the total dwellings consideration.

###
Example 1

Acquisition of dwellings and non-residential property - Ms E acquires the freehold to a 3 storey building from F Ltd. The building consists of 2 flats on the upper 2 stories and an office on the ground floor. Ms E owns her own home and neither flat is a replacement for that home. The amounts given for the 2 flats are £300,000 and £250,000 respectively and £200,000 for the office, making a total consideration of £750,000.

The total chargeable consideration is £750,000. The consideration attributable to dwellings is £550,000 (the £300,000 plus the £250,000 for the 2 flats). This is also the total dwellings consideration since there are no linked transactions.

The remaining consideration is £200,000 (the total chargeable consideration less the consideration attributable to dwellings). The total dwellings is 2.

As the transaction is a mixed transaction the non-residential rates may apply to the total consideration given, unless Ms E makes a claim to multiple dwellings relief. The LTT due, using the non-residential rates applicable on 1 April 2018, amounts to £26,000.

In the event that Ms E makes a claim to multiple dwellings relief her liability is calculated in the following manner:

The tax related to the consideration attributable to dwellings is the total dwellings consideration divided by the total dwellings - £275,000 (£550,000 divided by 2).

The LTT due under the main residential property rates on £275,000 is £3,700. Multiplying this by the total dwellings gives £7,400 (£3,700 x 2). This is larger than 1% of the consideration attributable to dwellings, £5,500. So the tax related to the consideration attributable to dwellings is the higher amount.

The tax related to the remaining consideration:

The tax due on the total chargeable consideration of a non-residential transaction (£750,000) would be £26,000

Using the formula above the remaining consideration (£200,000) is divided by the total consideration (£750,000) giving a fraction of 4/15. Multiplying £26,000 by 4/15 gives an amount of tax of £6,933.

The total tax due in the event of a multiple dwellings relief claim is £ 7,400 plus £6,933, a total of £14,333.

Therefore Ms E has the choice of applying the non-residential rates to the total consideration for the transaction (LTT £26,000), as this is a mixed use property, or alternatively making a claim to multiple dwellings relief on the consideration attributable to the dwellings, at the main rates for residential properties, and then non-residential rates for the remaining consideration (LTT £14,333).

###
Example 2

Acquisition of dwellings and other residential property - Ms G acquires the freehold to 5 flats from H Ltd. Ms G owns her own home already and none of the flats are a replacement for that home.

3 of the flats have been let on long term leases of 99 years, with 80 years remaining on each. 2 are let under leases originally granted of 15 years. The amounts given for the freehold of the flats are:

- £300,000 for the 2 that are subject to leases of less than 21 years, and
- £45,000 for the freehold reversion on the 3 flats let on leases of greater than 21 years, a total consideration of £345,000.

The total chargeable consideration is £345,000. The consideration attributable to dwellings is £300,000 for the 2 flats subject to leases of 15 years. This is also the total dwellings consideration since there are no linked transactions.

The remaining consideration is £45,000 (the total chargeable consideration less the consideration attributable to dwellings). The total dwellings is 2.

The transaction consists of residential property, some of which is liable to the higher rates for higher rates residential property transactions, and some is liable at the main rates.

Ms E makes a claim to multiple dwellings relief, her liability is calculated in the following manner:

The tax related to the consideration attributable to dwellings is the total dwellings consideration divided by the total dwellings - £150,000 (£300,000 divided by 2).

The LTT due under the higher rates rules on £150,000 is £4,500. Multiplying this by the total dwellings gives £9,000 (£4,500 x 2). This is larger than 1% of the consideration attributable to dwellings, £3,000 so the tax related to the consideration attributable to dwellings is the higher amount.

The tax related to the remaining consideration:

The tax due on the total chargeable consideration of other residential property (if none was liable to the higher rates for higher rates residential property transactions) would be £7,200.

Using the formula above the remaining consideration (£45,000) is divided by the total consideration (£345,000) giving a fraction is 3/23. Multiplying £7,200 by 3/23 gives an amount of tax of £939.

The total tax due in the event of a multiple dwellings claim is £9,000 plus £939,a total of £9,939.

## LTTA/7040 Relief for transfers involving multiple dwellings: "off plan" transactions

(paragraph 8)

Where:

- there is a contract to purchase a building, or part of a building, which is to be constructed or adapted under the contract for use as a dwelling or dwellings
- the contract is substantially performed before construction of the building, or part of the building, concerned has commenced, and
- the effective date of the transaction is deemed to be the date of substantial performance

for the purposes of the relief, the main subject-matter of the transaction will be taken to consist of or include an interest in a dwelling.

For this purpose a contract includes any agreement for a lease.

## LTTA/7041 Application to partnership transactions

A transfer of a partnership interest which is deemed to be a land transaction, an acquisition of a partnership interest which is treated as a major interest in land or a withdrawal of money, etc., from a partnership which is deemed to be a land transaction, cannot be a relevant transaction for the purposes of this relief.

## LTTA/7042 Relief for transfers involving multiple dwellings: treatment of halls of residence

The definition of residential property provides that ‘residential accommodation for students’ other than ‘halls of residence for students in further or higher education’ is to be treated as a dwelling. Therefore:

- a building (or part of a building) which is in use as residential accommodation for students, is used as a dwelling unless it is a hall of residence for students in further or higher education
- a building (or part of a building) which is in use as a hall of residence for students in further or higher education is not used as a dwelling, regardless of its suitability for any other use
- a building (or part of a building) which is not in use but is most suitable for use as residential accommodation for students (other than a hall of residence for students in further or higher education) is suitable for use as a dwelling, regardless of its suitability for any other use
- a building (or part of a building) which is not in use but is most suitable for use as a hall of residence for students in further or higher education is not suitable for use as a dwelling, regardless of its suitability for any other use
- a building (or part of a building) which is not in use but is equally suitable for use as residential accommodation for students or as a hall of residence is suitable for use as a dwelling.

The term ‘residential accommodation for students’ refers in this context to purpose-built or adapted accommodation whose only or main purpose is the accommodation of students in further or higher education and which would not meet the normal criteria of suitability for residential use as a single dwelling. This would apply in cases where the accommodation has many of the usual characteristics of a dwelling or dwellings but where, for example, use as student accommodation is stipulated by planning permission and major interests in the individual units of accommodation cannot be acquired or disposed of separately.

For the purposes of multiple dwellings relief where student accommodation is treated as used or suitable for use as a dwelling, the extent of a single dwelling will be determined on normal principles. For example, in the case of a block of flats available only to students, where each flat consists of individual study bedrooms with communal kitchen and bathroom facilities, each flat within the block will be treated as used, or suitable for use, as a single dwelling. However, each study within that flat will not constitute a separate dwelling.