Key Highlights

For those in property investment, it can be daunting how quickly costs can ramp up – especially unconsidered or “hidden” costs such as taxes and fees. Lack of proper financial planning can leave a lot of budding investors in the red before the properties are even let out.

However, it’s not all financial doom and gloom. There are a lot of tax reliefs, benefits, and deals within the UK property investment and buy to let industry to make things easier.

One of these tax relief benefits is the little known rule of 6. The ‘six or more’ rule allows purchases of 6 or more residential properties in one transaction to be treated as a non-residential purchase for SDLT purposes.

So, what does this look like in practice? According to the UK government website, the Stamp Duty Land Tax is this:

“The ‘six or more’ rule allows purchases of 6 or more residential properties in one transaction to be treated as a non-residential purchase for SDLT purposes. The top rate of non-residential SDLT is 5%, while the top rate of residential SDLT can be up to 17% if surcharges apply.”

Let’s look at what this means in more detail.

What Is Stamp Duty Land Tax Relief?

Stamp Duty Land Tax (SDLT) is a tax paid upon the completion of purchase of a property in England and in Northern Ireland. It applies to properties over a certain price, with different rates for residential and non-residential properties. For example, a residential property costing £300,000 will incur varying rates: 0% on the first £125,000, 2% on the next £125,000, and 5% on the remaining £50,000, totaling £5,000. First-time buyers and certain situations may qualify for relief or exemptions.

Stamp Duty Land Tax relief refers to a relief or “discount” which means that the tax needed to be paid can be reduced, depending on circumstances. It is often applied to first-time home buyers who are buying the property to live in themselves, though others can stand to benefit from either reduced or exempt stamp duty land tax. In order to qualify for the relief, purchasers must complete an SDLT return in order to claim said relief, even if no tax needs to be paid.

Multiple Dwellings Relief

A popular way for property investors to achieve a discount on their investments was through the implementation of the Multiple Dwellings Relief (MDR). MDR calculated the average value of the properties purchased and then applied the standard SDLT rate to this average, rather than applying SDLT to each individual property price or total price. It was calculated on an average value price, meaning that the tax owed is potentially lowered significantly.

This type of relief was only applicable when the person purchasing the properties does so in a single and complete transaction. This initially made purchasing multiple properties at once an attractive and lucrative opportunity for property investors looking to expand their wealth and increase their monthly passive income, whilst still netting a great discount on SDLT.

However, the Multiple Dwellings Relief has since been abolished and will no longer be applied from June 1 2024 onwards. It will be interesting to see how this affects the property market, with the expectation that deals will be hurried through prior to this date. While this might seem unappealing for potential investors, there are still other ways to receive tax relief if purchasing multiple properties.

Rule of Six

While the property investment market mourns the loss of the multiple dwellings relief, there is still hope. One of the ways to qualify for some relief on SDLT is to purchase multiple dwellings at once. Buying multiple properties in one transaction can often be done via purchasing several apartments from a UK property development agency or through transferring personal properties into a limited company.

The rule that enables SDLT on the purchase of six residences or more will be unaffected. The rule stipulates that buyers must purchase six (or indeed, more) properties at once in a single transaction, using the non-residential property rates of SDLT.

It is good news for property investors who have set their sights high, as they’re still able to net some discounts while growing their overall investment portfolio and increasing their monthly passive income.

Summary

North Property Group is an investment property agency and lettings agency, specialising in UK new build and uk off plan property. We discover the best deals in London and across England with first-class property development agencies to hand deliver the best UK property development deals to investors.

In addition to finding the best deals on the market, we also offer a comprehensive lettings management service, providing support and guidance during the tenancy lifecycle. Book a free consultation with us today to start your Manchester investment journey and tap into the UK’s premium off plan property opportunities.