Reshma Johar delves into the increasingly popular multiple dwellings relief for stamp duty land tax relief purposes.
Multiple dwellings relief (MDR) is a useful relief from stamp duty land tax (SDLT). Where MDR applies, the relief provides purchasers with a saving, by enabling each dwelling use of the SDLT nil rate band and lower rate bands.
SDLT complexities
Advisers will need to tread carefully to establish what rates and possible reliefs apply to the transaction.
Since 8 July 2020, there has been an ‘SDLT holiday’ on the rates for residential properties by the extension of the ‘nil rate band’. From 1 July 2021, there will be a ‘staged’ withdrawal of the nil rate band before reverting to £125,000 from 1 October 2021.
That’s a relief!
The following transactions could benefit from MDR:
- The purchase of at least two or more dwellings.
- The purchase of at least two dwellings and other property.
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A purchase which forms part of a linked transaction which results in at least two dwellings or at least two dwellings and other property.
Generally, a dwelling is a building (or part of a building) which is used or suitable for use as a single dwelling, or is in the process of being constructed or adapted for such use. Dwellings can also include any land that is or forms part of the gardens or grounds of a building, or an interest in or right over land that subsists for the benefit of a building (see FA 2003, Sch 6B, para 7 for the detailed definition).
Transactions excluded from MDR
The legislation provides specific inclusions and exclusions of what buildings are considered a dwelling. Examples of exclusions include:
- dwellings subject to the higher rate threshold of 15% rate (17% if non-resident);
- SDLT group relief, reconstruction relief, and acquisition relief could be claimed or has been withdrawn;
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superior interest (freehold or headleases) over dwellings if a lease has been granted over dwellings of more than 21 years – this does not apply if the transaction is made under a lease and leaseback arrangement.
Mechanics of the relief
- Assess on a ‘just and reasonable basis’ what consideration relates to interests in dwellings and what (if any) relates to other property. SDLT is then calculated for both separately, and later aggregated.
- To calculate tax for the dwellings, divide the consideration by the number of dwellings.
- Calculate the SDLT on the average consideration for a dwelling, followed by multiplying this by the number of dwellings.
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Work out the SDLT for the other property, which could involve applying the non-residential SDLT rates.
The calculation differs if the relevant transaction is one of a number of linked transactions.
Factors to consider
- Compare calculations with and without MDR.
- It is also possible to apply both the residential SDLT rates and non-residential SDLT rates to transactions, which include both dwellings and commercial property (provided the commercial property is not insignificant).
- If the non-residential SDLT rates apply, it is highly unlikely that MDR would give a better result.
- Where the transaction includes six or more residential dwellings, the purchaser can choose whether to claim MDR or apply the non-residential SDLT rates.
- The SDLT residential rates applied to a transaction may include the higher rates and non-residential rates.
- The transaction may include a ‘granny’ flat, which may result in different rules when considering SDLT.
- The total SDLT payable will need to be at least 1% of the total consideration.
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Can the dwellings clearly be identified as independent and separate areas. The dwelling should contain facilities to cook, sleep, live and wash, as well as having its own independent access.
Three-year countdown
Relief is lost if there are any changes in circumstances which, had they taken place before the effective date, would have meant more SDLT payable. The manuals at SDLTM29965 confirms that onward sale of an individual dwelling is not an event.
Practical tip
Relief is not automatic. A claim is needed via the land transaction return or an amendment of such return. Amendments should be made within 12 months from the filing date of the original return.
