Our clients often ask about the reliefs available to offset tax when buying and selling property.
If you’re making multiple property purchases, then you may be able to claim Multiple Dwellings Relief (MDR). MDR can be used to reduce stamp duty land tax (SDLT) paid when purchasing multiple properties in the same transaction.
In this blog we give you all the information you need about multiple dwellings relief for Stamp Duty.
What is multiple dwellings relief for SDLT?
MDR is a tax relief introduced by HMRC to reduce barriers to investment in residential property. Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT) is a relief that can be claimed when you purchase more than one dwelling in a transaction. MDR could apply for example if you buy multiple properties from a developer or where you transfer properties from personal ownership to a limited company.
MDR applies Stamp Duty Land Tax (SDLT) to the average value of the collective properties, instead of the purchase price of the individual properties or the total purchase price.
When all the relevant conditions are met, the relief can reduce the rate of SDLT payable on acquisitions of multiple residential properties.
What is classed as a dwelling?
The word ‘dwelling’ refers to a building where one household live (e.g. a house or flat). It also includes land that comes with the dwelling, like a garden or land that benefits the dwelling, like a separate garage in a block.
The types of properties that can be claimed under multiple dwellings relief include:
- Houses, apartments or flats bought together.
- A self-contained annex purchased with a house.
- Mixed-use property (e.g. a shop with a flat above).
When can you claim multiple dwellings Relief?
To be eligible to claim Multiple Dwellings Relief, your transaction must be of at least two dwellings, or be of a single dwelling IF it is part of a ‘linked transaction’ (see description below).
To qualify for multiple dwellings relief, you must be buying two or more properties (dwellings) in the same transaction or linked transactions. If you purchase between 2 and 5 properties, residential MDR will apply. If you’re purchasing more than or mixed-use properties (residential and commercial) you can apply non-residential SDLT rates. Non-residential SDLT rates are lower than residential rates.
What is a linked transaction?
A ‘linked transaction’ is where multiple property transactions are undertaken between the same buyer and seller. Or it could be where you transfer your personally held portfolio into your limited company. Because the rate of Stamp Duty Land Tax is applied to the value of the collective properties in the linked transaction; the tax rate is potentially higher than an individual property. But MDR applies and the rate of tax is charged by the average price of the dwellings.
Multiple dwelling (MDR) rates
Below are the current MDR rates:
- A minimum of 1% tax must be paid on the purchase price.
- 3% additional SDLT rate for residential property purchases.
- Mixed-use properties are exempt from the 3% surcharge and pay commercial stamp duty rates, not residential.
When does multiple dwellings Relief not apply?
MDR doesn’t apply to the transfer of a freehold reversion or head lease if one of the dwellings has a 21 year or higher lease.
After the initial transaction, if the number of dwellings is reduced within 3 years, you may need to fill in an additional return and recalculate the tax due.
Does multiple dwellings relief apply with non-residential property included?
A buyer can elect whether to treat the transaction as a commercial property transaction and use the commercial property SDLT rates or use the residential rates and MDR relief. The commercial rates of SDLT cannot be used in addition to MDR.
Is multiple dwellings relief available for non-residents?
Yes, Multiple dwellings relief is available on the purchase of multiple dwellings subject to the higher rates payable by non-UK resident purchasers.
Does an annexe qualify for multiple dwelling relief?
This will depend on whether the annexe is classed as being a separate dwelling. A self-contained annexe or outbuilding may be considered as a separate dwelling; however, this isn’t always the case.
Can I claim MDR for mixed-use properties?
Mixed-use properties classed as those that contain both residential and non-residential features. For example, a show with a flat above it qualifies as mixed-use property.
MDR is only available for residential part of the transaction and normal non-residential SDLT rates apply to non-residential parts of the transaction.
Can I claim multiple dwellings relief for off-plan property purchase?
The relief includes provision for “off-plan” purchases where construction or adaptation of the property for residential use may not have commenced by the effective date of the transaction.
HMRC consider “off-plan” to mean a purchase where the subject - matter of the contract is a dwelling that is to be constructed but construction has not started at the point the contract is substantially performed. This is distinct from a purchase of bare land with planning permission but without an obligation to build a dwelling. MDR will apply to the former but not the latter.
Claiming multiple dwellings relief
Multiple dwellings relief should be claimed through your professional advisors or SDLT Accountants, at the time of purchase.
You may need evidence of the multiple dwellings, such as a surveyor’s report or property floor plan.
Can I claim multiple dwellings relief retrospectively?
Yes, MDR can be claimed retrospectively. If you’ve overpaid stamp duty, it’s possible to submit a retrospective MDR claim up to 12 months from the filing date.
MDR relief on SDLT can be amended or claimed when not included in the previous return. Such amendments can be filed up to twelve months after filing the original return.
Do I have to pay the 3% SDLT Surcharge?
If you own a home, there is a 3% SDLT surcharge that is chargeable upon purchase of additional residential property. This doesn’t include homes that are bought to replace your current home.
If you are looking at purchasing two or more dwellings, then Multiple Dwellings Relief can potentially save you thousands in stamp duty. However, both Stamp Duty Land Tax and Multiple Dwellings Relief can be very complicated.
You need to consider carefully whether to claim multiple dwellings relief. It will not apply automatically if not claimed. In some circumstances a purchaser may choose to apply a different rule, whereby the purchase of six or more dwellings in a single transaction may be treated as a non-residential transaction for the purposes of SDLT. This is why you should seek profession advice from a tax expert, because if both options are available, a professional can work out which route is more SDLT efficient.
Any questions? Schedule a call with one of our experts.
Whether you prefer to meet and speak over the internet, or if you prefer an in person conversation we can help you with your preference.
Stay up-to-date with the latest news affecting small businesses, get business tips and tax saving advice.