How to pay less SDLT with Multiple Dwellings Relief
We’re often asked about the reliefs available to offset taxes when buying and selling property. In this blog, we’re taking a deep dive into Multiple Dwellings Relief (MDR) which can be used to offset the amount of stamp duty paid when purchasing multiple properties in the same transaction. We’ll cover what MDR is, the qualifying criteria and how to claim it to reduce your SDLT bill.
‘’Stamp Duty Land Tax in itself is a very complicated area. When looking at reliefs, we always suggest you speak to an advisor as we find all cases need to be looked at on their own merits to understand what reliefs can or cannot be claimed. Multiple Dwellings Relief was originally intended to lower the SDLT cost involved in bulk purchases of residential property to improve the supply of private rented housing. However, it is available whenever two or more dwellings are acquired, including where a main house is acquired with a granny annex.
"MDR has been around for a long time, but we find that many accountants or solicitors are not aware of the relief or indeed when it applies, resulting in many clients having significantly overpaid in SDLT.’’
Nadeem Raziq, Head of Tax
What is Multiple Dwellings Relief (MDR)?
If you’re buying multiple properties in one transaction, for instance, buying a number of flats from a developer or transferring your personally owned properties into a limited company, there may be an opportunity to save tax under multiple dwellings relief.
MDR calculates the average value of the properties and applies SDLT rates to this figure, rather than the purchase price of the individual properties or the total purchase price.
Total value / number of properties = avg value per property
SDLT rates are applied to the individual average then multiplied by the number of properties
What is a ‘dwelling’?
Simply put, a dwelling is a building (such as a house or flat) in which people live.
In the context of SDLT and multiple dwellings relief, HMRC defines a ‘dwelling’ as:
A building (or part of a building) suitable for use as a single dwelling (occupied by one household) or in the process of being constructed/adapted as one
Typically, the types of properties that can be claimed under multiple dwellings relief include:
Houses, apartments or flats bought in bulk
Self-contained annex purchased with a main house
Mixed-use property (e.g. a shop with a flat above)
What qualifies for MDR?
To qualify for multiple dwellings relief, you must be buying two or more properties (dwellings) in the same transaction or a series of linked transactions.
2-5 properties:
If you are buying between 2 and 5 properties, residential MDR will apply.
6+ or mixed-use properties:
If you are buying more than 6 properties, or a mixed-use (residential and commercial) property, you can apply non-residential SDLT rates, which are lower than residential rates.
MDR rates
A minimum of 1% tax must be paid on the purchase price
Residential property purchases are subject to the 3% additional SDLT rate
Mixed-use properties are exempt from the 3% surcharge and pay commercial stamp duty rates, not residential.
There are varying rates of stamp duty for both residential and non-residential property. See our SDLT rates table for current rates.
What is a linked transaction?
A ‘linked transaction’ is where multiple property transactions are carried out between the same buyer and seller, for example, transferring your personally held portfolio into your limited company.
With linked transactions, the value of all properties is usually added together and then SDLT is applied, which often means the tax is higher than on an individual property. For this reason, it's well worth applying MDR to linked transactions!
Here's an example MDR scenario:
A transaction includes the acquisition of 4 “dwellings” for £950,000.
Applying Multiple Dwelling Relief, we get an average price of £237,500 per dwelling. (£950,000/4)
| Average price per dwelling | £237,500 |
|---|---|
| 3% SDLT x £125,000 | £3,750 |
| 5% SDLT x £112,500 | £5,625 |
| Total per dwelling | £9,375 |
| Combined total ( £9,375 x4) | £37,500 |
Without claiming MDR, the stamp duty land tax payable would be £67,250.
How to claim Multiple Dwellings Relief?
As you can see from the example above, applying Multiple Dwellings Relief can potentially save you thousands in stamp duty.
Multiple dwellings relief should be claimed through your solicitor, at the time of the property purchase. However, if you have overpaid stamp duty, it is also possible to submit a retrospective MDR claim up to 12 months from the filing date.
You may be asked to provide evidence of the multiple dwellings - this could be in the form of a surveyor’s report or property floor plan.
In our experience, we’ve found that many conveyancing solicitors don’t consider (and some don’t know about) MDR. This is why it’s important to talk to a property tax expert.
We’ve recently helped several Provestor clients to make successful MDR claims.
CASE STUDY 1: Mixed use property transfer
Saved £60k SDLT
A client approached Provestor about the transfer of six personally held properties which they wished to move to their limited company for tax efficiency purposes. Any transfer to a company attracts Stamp Duty Land Tax (SDLT) at the market value of each transfer. The portfolio consisted of six residential properties, one of which had a substantial commercial element attached.
By utilising the fact the portfolio was now a mixed transaction for SDLT purposes (i.e residential and non residential), together with the use of Multiple Dwellings Relief (MDR), we were able to save the client approximately £60,000 in SDLT from this one transaction alone. We also corresponded with the client's solicitor to ensure the client was able to claim this before the SDLT window.
CASE STUDY 2: Proactive residential MDR claim
Provestor accountants were proactive and spotted opportunity for a residential MDR claim
A client had advised us they had purchased a property which consisted of four flats within the one freehold from the same vendor. After reviewing the purchase completion statement, it was apparent to us the SDLT paid was very high. After further investigation, we found the normal rates of SDLT were applied as if the purchase was for one single property.
After applying MDR on the four separate dwellings purchased in the same transaction, we were able to save the client approximately £15,000 in SDLT and advised them to reclaim this amount with the 12 month window through their solicitor.
In summary, if you’re adding multiple properties to your portfolio, it’s a good idea to discuss your plans with a property tax specialist to see if you can benefit from Multiple Dwellings Relief.
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