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HMRC consultation on changes to SDLT calculations for mixed-property plus MDR reform

Nadeem Raziq BA (Hons), FCCA, ATT
Head of Tax

HMRC has announced a consultation seeking views on changes to SDLT calculations for mixed-property purchases and reform to Multiple Dwellings Relief (MDR).

The aim of the consultation and proposed changes is to ensure there are fairer tax outcomes and to prevent abuse of the Stamp Duty Land Tax (SDLT) legislation, specifically ‘mixed-property’ transactions and ‘Multiple Dwellings Relief’ (MDR).

We’ve summarised the key things property investors need to know from the HMRC consultation paper below.

Nadeem Raziq, Head of Tax at Provestor commented: “From the consultation paper it’s apparent that HMRC’s main focus is on reducing ‘unreasonable’ claims from home residential purchasers. Whilst the reforms to MDR are unlikely to significantly affect property investors, the proposed changes to tax calculations for mixed-property purchases would impact investors.

“HMRC is paying attention to the property market. They’re starting a consultation because they know there's an issue, and from this we expect that we may see an uptick in investigations that HMRC open.

“This is something that property investors should be aware of, particularly when it comes to managing their tax liabilities. Our sister contractor accountancy company, inniAccounts, has seen HMRC conduct retrospective investigations following legislative changes over the past 10 years. We advise landlords to be careful and scrutinise “SDLT reclaim” schemes and other ways of ‘getting one over on the tax man’. If it sounds too good to be true, it often is, and could land you with a future tax liability!”

Scope of the consultation

HMRC is consulting on:

  • changes to the way in which tax is calculated when purchasers acquire property that is mixed property (meaning it comprises both residential and non-residential property).

  • options to reform the SDLT treatment of property purchases that include more than one dwelling (Multiple Dwelling Relief rules),

Who should read the consultation

Taxpayers; tax practitioners and conveyancers; those involved in the construction, marketing and sale of property; property rental businesses, including buy-to-let landlords; Non-Governmental Organisations with an interest in tax.


The consultation runs for 12 weeks from 30 November 2021 to 22 February 2022.

Mixed Property

An apportionment basis for mixed-property

This consultation is seeking views on introducing a new apportionment method of calculating tax in mixed-property cases. Apportionment would mean that the residential portion of a mixed property purchase would be taxed as residential property and the remaining, non-residential portion of a purchase would be taxed as non-residential property.

Likely impact of apportionment

If apportionment were to be introduced, it would make the SDLT paid on mixed-property purchases more equitable as the amount payable would reflect the underlying economic nature and use of the land being purchased to a much greater extent.

It would ensure that people buying residential property would pay SDLT at the residential rates. It would also address attempts to include token amounts of non-residential property in residential purchases and remove opportunities for purchasers and SDLT reclaim agents to make questionable or abusive claims that a residential purchase is of mixed-property.

HMRC examples of ‘unreasonable interpretations’ of mixed property rules

  • A purchaser claimed that if they leased their garage, which was part of a semi-detached property in an ordinary residential suburb, to a company for storage then the purchase of the house, garden and garage would be a mixed-property purchase and subject to the lower non-residential SDLT rates.

  • A purchaser claimed that a right of access to a communal garden accessible only by fellow residents at the centre of a high value residential square in London meant that the purchase of their home was a mixed-property purchase and therefore attracted only the lower non-residential SDLT rates.

  • A purchaser claimed that a paddock behind the back garden of a substantial residential property in an affluent location was non-residential on the basis that it was grazed by a neighbour’s horse on an informal basis. The purchaser claimed that this meant the whole property attracted only the lower non-residential rates of SDLT when in fact the residential rates were applicable.

  • A purchaser claimed that a right of way across the grounds of a country house was non-residential land and therefore the purchase of the property should be entitled to the lower non-residential rates. The path was part of the grounds of the home, and nothing separated it from the rest of the grounds.

  • A purchaser claimed that the use of a room above a detached garage as an office in a large, detached, 6-bedroom home in a rural area, as a reason why it was not the purchase of a dwelling. They claimed the fact that the room was used for the purchaser’s job during the day meant that the whole dwelling was subject to the lower non-residential SDLT rates.

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Multiple Dwellings Relief

The problem

MDR was introduced to reduce the rate of SDLT payable on the purchase of multiple residential properties so that it is closer to that charged when purchasing those properties separately. This was to help strengthen demand for, and reduce barriers to investment in residential property, promoting the supply of private rented housing.

The current rules apply to both non-business and business purchases. This means that MDR is available where, for example, a private individual purchases a house which has a separate annex or outbuilding which itself constitutes a separate dwelling. The significant tax saving available through MDR has led to the emergence of an industry of ‘SDLT reclaim agents’ who typically contact purchasers after they have submitted their SDLT return, suggesting incorrectly that part of the property purchased is a separate dwelling.

HMRC examples of ‘unreasonable interpretations’ of MDR

  • A purchaser submitted a return following the purchase of a large house, but later claimed that an indoor entertainment area, swimming pool and toilet at the end of the garden were a separate dwelling.

  • A purchaser bought a typical suburban house and the conveyancer correctly submitted the SDLT return on the basis that it was a single dwelling. Later the purchaser claimed that the integral garage which had a toilet and basin was itself capable of being used as a dwelling and so the purchase qualified for MDR.

  • A purchaser claimed that an en-suite bedroom in a 7-bedroom detached house was suitable for use as a separate dwelling as it had a built-in wardrobe with an electric socket and could house a microwave and a kettle and so function as a kitchen.

  • A purchaser bought a two-bedroom barn conversion and later claimed that a utility room with a toilet was suitable for use as a separate dwelling. They amended their return to claim MDR on the basis that the barn conversion was two separate dwellings.

  • A purchaser bought a 5-bedroomed semi-detached house with a garage. They claimed that the garage, which had electricity points and was constructed only from breezeblock, was itself suitable for use as a separate dwelling.

MDR reform options

Option 1 - Allow MDR only where all the dwellings are purchased for a ‘qualifying business use’

The incorrect claims received by HMRC are almost entirely by private individuals purchasing their homes. Under this option, MDR would be available only where the purchaser intends to use all the dwellings for a ‘qualifying business use’.

A property acquired for a ‘qualifying business use’ would be one that is acquired for:

  • development or redevelopment and resale;

  • exploitation as a source of rents.

Option 2 - Allow MDR only in respect of the dwellings purchased for a ‘qualifying business use’

The rules and conditions for this option would be largely the same as for Option 1, but with the difference that MDR would be available only for those dwellings acquired for a ‘qualifying business use’ and not for dwellings not acquired for such a use.

For example, four flats are purchased, three of which are intended to be used for a ‘qualifying business use’ with the fourth to be occupied by the purchaser. MDR would not be available for the flat to be occupied by the purchaser and its value would be deducted from the total consideration to arrive at the amount in respect of which MDR can be claimed.

Option 3 - Restrict MDR by introducing a ‘subsidiary dwelling’ rule

This option would align the MDR rules with the ‘subsidiary dwelling’ rule which applies to the Higher Rate for Additional Dwellings (HRAD) - also known as the 3% buy-to-let surcharge.

There is an existing rule within the HRAD legislation whereby if there is a subsidiary dwelling (such as an annex) within the same building or grounds as another dwelling, it is counted as a separate dwelling for the purposes of HRAD only if its value is a third or more of the price attributable to the property as a whole.

This rule means that HRAD is not payable on a subsidiary dwelling (such as an annex which is to be occupied by another family member) which is valued at less than a third of the total price of the property. The government has no plans to change this.

Under this option, a similar test would apply to both non-business and business purchasers so that part of a building, or a building within the grounds of another dwelling, would not count as a separate dwelling for the purposes of MDR unless its value is a third or more of the total price attributable to the property as a whole. The MDR calculation would continue to operate as now.

Option 4 - Allow MDR only for purchases of three or more dwellings

MDR is currently available where two or more dwellings are purchased in a single transaction, or as part of a series of linked transactions.

Under this option, MDR would be available only where three or more dwellings are purchased. This would be a simple legislative change which would likely reduce the number of incorrect claims being submitted to HMRC which typically rely on individuals claiming that a single dwelling is two dwellings.

How to respond

You can respond to the changes proposed by HMRC by emailing: before 11:45pm on 22 February 2022.

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Nadeem Raziq BA (Hons), FCCA, ATT
Head of Tax

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