We are happy that both contracts are “linked transactions” for SDLT purposes due to the buyer and seller being connected parties. The first contract is dated before Budget Day (6 March 2024) with the second being entered into after that date. The first contract will complete this month (April 2024) but the second will complete after 1 June 2024 (the date that multiple dwellings relief (MDR) is to be withdrawn). There is no “substantial performance” due to take place in respect of any of the properties before 1 June. We are confident that the first two dwellings acquired would qualify for MDR under existing rules but understand that the second two acquisitions will not, due to completion post 1 June. Could you confirm our understanding and clarify how MDR will work in these circumstances, particularly given the linked-transaction status of all the acquisitions.
A. Budget 2024 announced the withdrawal of MDR for transactions with an “effective date” of 1 June 2024 or later and the draft legislation is available here draft FB 2024.
The “effective date” of a transaction for SDLT purposes is the earlier of:
a) completion, and
b) “substantial performance” which is defined as either: the payment of a substantial amount of the consideration (SDLTM07950); or taking possession of the subject matter of the transaction (SDLTM07900).
The provisions distinguish between “pre-commencement transactions”- those with an effective date before 1st June 2024 – which qualify for MDR under existing rules, and “post-commencement transactions” – with an effective date after 31 May – which will no longer qualify for the relief.
Paragraph 6 addresses linked transactions (transactions are linked if, broadly, they form part of a single scheme, deal, arrangement, or series of transactions, between the same seller and buyer – see SDLTM30100); this makes clear that MDR remains available only for pre-completion transactions as follows:
“(6) If—
(a) pre-commencement land transactions are linked to post-commencement land transactions, and
(b) all of the transactions would (but for this section) be relevant transactions for the purposes of Schedule 6B to FA 2003, a claim under that Schedule is available only in relation to the pre-commencement land transactions”.
Paragraph 7 then provides that pre-commencement transactions, which remain eligible for MDR, are treated as not being linked to any post-commencement transactions that do not qualify for MDR. Therefore, in a case involving linked transactions which straddle the implementation of the new rules, the qualifying and non-qualifying transactions respectively are not treated as linked with each other; this means that MDR may still be claimed under the existing rules for properties acquired under “pre-completion” transactions.
In your client’s case, MDR is therefore available in respect of the two properties acquired under the initial “pre completion” transaction, but these will not be linked-with the two “post-acquisition” properties, which cannot benefit from MDR.
However, if substantial performance (taking possession or payment of a substantial amount of the consideration) were to take place in respect of the second contract before 1 June 2024, then this contract would also be excluded from the new rules as follows:
“(3) The amendments made by this Resolution have effect in relation to land transactions the effective date of which falls on or after 1 June 2024.
(4) But those amendments do not have effect in relation to a land transaction if—
(a) the transaction is effected in pursuance of a contract entered into and substantially performed before 1 June 2024”
MDR would therefore still be available in respect of those two properties and as they would then be linked with the earlier transaction the relief would be available in respect of all four properties. It is important that “substantial performance” is genuine and not contrived as HMRC may want to check the bona-fides of the arrangements particularly given the connected status of the parties concerned.
The above is based on an understanding of the draft legislation for Finance Bill 2024 which is subject to possible amendment or even withdrawal before enactment.
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