Large increase in SDLT relief claimed by landlords
With the self assessment tax return filing deadline for the 2021/22 tax year now behind us, HMRC will soon be able to confirm whether the number of unincorporated buy-to-let landlords has continued to decrease from the figure of 2.71m landlords in 2020/21, potentially placing more pressure on the supply of properties in the rental market.
It is anticipated that a downward trend in the number of landlords is likely to have continued beyond 2021/22 into this current tax year. Rising interest rates and the associated mortgage costs is exacerbating the issue for many unincorporated landlords who generally no longer benefit from full tax relief on such finance costs. The number of landlords paying tax on their rental income, even though they may have made a commercial loss when their mortgage costs are taken into account, is likely to increase.
For some, this may be the straw that breaks the camel’s back, and prompt landlords to consider selling up and exiting the buy-to-let market altogether. However, HMRC’s recently published statistics relating to stamp duty land tax (SDLT) suggests that landlords with larger portfolios may be using a little-known SDLT relief in record numbers to address this concern.
Whilst individuals may see the tax relief for costs associated with their buy-to-let mortgages restricted, no such restriction exists for companies holding property portfolios. As a result, we have seen an increased number of individuals seeking advice on whether they can transfer their property portfolio to a company.
There are two key tax barriers to transferring a property portfolio held personally to a company instead, namely capital gains tax (CGT) and SDLT. The CGT cost of transferring a buy-to-let property portfolio to a company can potentially be mitigated if it represents a business for tax purposes, as the transfer may qualify for CGT relief.
However, in many cases, SDLT will be a cost that a landlord has to stomach in return for the future advantage that holding the properties in a company may offer. Such an SDLT cost could be reduced if a relief, known as ‘multiple dwellings relief’, is available and claimed. The latest statistics from HMRC show that there has been a large spike in the number of such claims in the 2021/22 tax year from the year before.
Multiple dwellings relief can reduce the amount of SDLT payable in a transaction when multiple residential dwellings are acquired. This would typically be the case when a buy-to-let landlord incorporates their portfolio and can reduce the effective SDLT rate to a flat-rate of 3%, potentially even lower in very specific circumstances. Equivalent reliefs may also apply in Scotland and Wales who have devolved property stamp taxes.
According to HMRC’s figures, the number of claims for multiple dwellings relief in the 2021/22 tax year has risen dramatically by 44% from the year before, with 15,400 claims for the relief being made compared to 10,700 in the prior year. With the pressures for landlords showing no signs of abating, we could well see further significant increases in the number of claims for multiple dwellings relief in 2022/23 and subsequent years.
It is anticipated that a downward trend in the number of landlords is likely to have continued beyond 2021/22 into this current tax year. Rising interest rates and the associated mortgage costs is exacerbating the issue for many unincorporated landlords who generally no longer benefit from full tax relief on such finance costs. The number of landlords paying tax on their rental income, even though they may have made a commercial loss when their mortgage costs are taken into account, is likely to increase.
For some, this may be the straw that breaks the camel’s back, and prompt landlords to consider selling up and exiting the buy-to-let market altogether. However, HMRC’s recently published statistics relating to stamp duty land tax (SDLT) suggests that landlords with larger portfolios may be using a little-known SDLT relief in record numbers to address this concern.
Whilst individuals may see the tax relief for costs associated with their buy-to-let mortgages restricted, no such restriction exists for companies holding property portfolios. As a result, we have seen an increased number of individuals seeking advice on whether they can transfer their property portfolio to a company.
There are two key tax barriers to transferring a property portfolio held personally to a company instead, namely capital gains tax (CGT) and SDLT. The CGT cost of transferring a buy-to-let property portfolio to a company can potentially be mitigated if it represents a business for tax purposes, as the transfer may qualify for CGT relief.
However, in many cases, SDLT will be a cost that a landlord has to stomach in return for the future advantage that holding the properties in a company may offer. Such an SDLT cost could be reduced if a relief, known as ‘multiple dwellings relief’, is available and claimed. The latest statistics from HMRC show that there has been a large spike in the number of such claims in the 2021/22 tax year from the year before.
Multiple dwellings relief can reduce the amount of SDLT payable in a transaction when multiple residential dwellings are acquired. This would typically be the case when a buy-to-let landlord incorporates their portfolio and can reduce the effective SDLT rate to a flat-rate of 3%, potentially even lower in very specific circumstances. Equivalent reliefs may also apply in Scotland and Wales who have devolved property stamp taxes.
According to HMRC’s figures, the number of claims for multiple dwellings relief in the 2021/22 tax year has risen dramatically by 44% from the year before, with 15,400 claims for the relief being made compared to 10,700 in the prior year. With the pressures for landlords showing no signs of abating, we could well see further significant increases in the number of claims for multiple dwellings relief in 2022/23 and subsequent years.
Related insights
Impact of stealth taxes laid bare
24 Apr 2024
