To encourage investment in residential property, the UK Government introduced a tax relief called Multiple Dwellings Relief (MDR).
Multiple Dwellings Relief can assist property investors and landlords in saving on Stamp Duty Land Tax. Multiple Dwellings Relief can reduce the Stamp Duty Land Tax bill of people that purchase more than one dwelling in a single transaction.
In this blog, we’ll give you comprehensive information around the rules on MDR, how Multiple Dwellings Relief (MDR) works, what qualifies and how to claim the relief.
What is Multiple Dwellings Relief for SDLT?
Multiple Dwellings Relief for Stamp Duty Land Tax (SDLT) can be claimed by anyone that purchases multiple residential properties in a single transaction (or multiple property purchases that qualify as linked transactions – see below).
The transaction must contain at least two dwellings in order to qualify for the relief.
If the conditions are met, then Multiple Dwellings Relief will reduce your Stamp Duty Land Tax liability.
What properties apply when claiming Multiple Dwellings Relief?
The types of residential properties that qualify for Multiple Dwellings Relief are as follows:
- Houses, apartments or flats when purchased together.
- A self-contained annex purchased with a main residential property/house, such as an annexe or “granny flat”.
- A mixed use property such as a flat above a commercial property such as a shop.
Multiple Dwellings Relief can also include land that come with a residential property, like a garden or additional land.
Meaning of dwellings for MDR
The definition of a dwelling for MDR purposes is where one household live.
Does Multiple Dwellings Relief apply with non-residential property included?
If you are purchasing purely non-residential property, then MDR will not apply. However, if you purchase a building that contains both residential property and non-residential property, this is classed as a mixed use property, then Multiple Dwellings Relief will apply to the residential part of the transaction.
For example if you purchase flats that contain a commercial property in the transaction such as a shop beneath them. Normal non-residential SDLT rates will apply to the non-residential parts of the transaction.
When can you claim Multiple Dwellings Relief?
In order to claim Multiple Dwellings Relief, you must purchase two or more dwellings in a single transaction or multiple single dwellings as part of ‘linked transactions’ (see below about linked transactions).
If you purchase between 2 and 5 properties, residential MDR will apply. If you’re purchasing more than 5 properties or mixed-use properties (residential and commercial properties), you can apply non-residential SDLT rates. Non-residential SDLT rates are lower than residential rates.
When does Multiple Dwellings Relief not apply?
The relief does not apply if you are just purchasing a single dwelling.
The relief does not apply to the transfer of a freehold reversion or headlease where a dwelling has a long lease of 21 years or more.
You might need to fill in another return and recalculate the tax due if the number of dwellings is reduced within 3 years of the transaction. For example, if you combine 2 flats into 1.
What are linked transactions for Multiple Dwellings Relief?
A ‘linked transaction’ is where multiple property transactions are undertaken between the same buyer and seller. For example if you purchased multiple flats or apartments in a single block from a single seller.
When purchasing multiple properties together, the value of all the properties is usually added together and Stamp Duty Land Tax is applied to the total. This means that you will pay more SDLT than on an individual property purchase. For this reason, Multiple Dwellings Relief if worth claiming using the linked transactions rule to reduce your Stamp Duty bill.
Linked transaction can be used for example when transferring your personally held property portfolio into a limited company.
Can I claim Multiple Dwellings Relief retrospectively?
Yes, MDR can be claimed retrospectively. MDR relief on SDLT can be amended or claimed when not included in the previous return by submitting a retrospective MDR claim up to 12 months from the filing date.
Is Multiple Dwellings Relief available for non-residents?
Yes, Multiple dwellings relief is available to non-UK resident individuals on the purchase of multiple dwellings, but non-residents will be subject to the higher rates payable by non-UK resident purchasers.
How can Multiple Dwellings Relief be claimed for SDLT?
Calculating your MDR can be complicated. Multiple dwellings relief can be claimed through your conveyancer or `professional advisors such as property tax experts at dns accountants, at the time of purchase.
You may need evidence of the multiple dwellings, such as a surveyor’s report or property floor plan.
The benefits of using multiple dwellings relief
Where the criteria for multiple dwellings is met, the SDLT payable is likely to reduce as it will be calculated on the average price of the dwellings acquired rather than the total purchase price of the individual dwellings added together, taking advantage of the lower rate bands for each dwelling.
Multiple dwelling relief on an annexe
Where a property has an annexe or ‘granny annexe’ MDR will apply.
An annexe is a self-contained living space that is part of another property.
An annexe generally has the following features:
- It can be used as a separate living accommodation.
- It has facilities such as cooking, toilet, and washing.
- It has an entrance of its own.
Do I have to pay the 3% SDLT surcharge when claiming MDR?
MDR and higher rates of SDLT
HMRC amended the MDR guidelines to state that where MDR is claimed on a mixed-use property against the dwellings within it, then the 3% stamp duty land tax surcharge does not apply.
How do you calculate SDLT for MDR?
Stamp Duty Land Tax is calculated on multiple dwellings by taking the total cost of the purchase and then dividing it by the number of dwellings purchased.
However, the calculation for SDLT rates on multiple dwelling purchases can be complex. So seek advice from Property Tax Services and the property tax experts at dns accountants to claim MDR and advise you on the SDLT you owe. Call us on 03300 575 902.
If you are purchasing multiple dwellings, then there is no doubt that it is worthwhile for you to claim multiple dwellings relief.
However, we advise you to seek advice from an experienced property tax accountant. For help and advice on multiple dwellings relief call the property tax experts at dns accountants on 03300 575 902.