Multiple Dwellings Relief-Payless stamp duty 

In 2011, the UK government bought Multiple Dwellings Relief or MDR in order to encourage more investment into residential property by payless stamp duty.

Multiple Dwellings Relief  (MDR) is available to residential property buyers who acquire interests in multiple dwellings, either through a single or linked transaction. The purpose of Multiple Dwellings Relief is to Multiple Dwellings Relief is you payless stamp duty land tax (Stamp Duty Land Tax) when more than one dwellings are bought – bringing it closer to the SDLT rate which would apply if the dwellings were bought individually in a different transaction.

How is ‘dwellings’ classified under MDR?

According to multiple dwellings relief legislation, dwelling is defined as:

  • A building or part of it suitable for a single dwelling or one which is currently being constructed or adapted for such a purpose;
  • Land which shall be used or enjoyed with a dwelling – e.g. a garden or grounds;
  • Land which subsists or will in future for the benefit of a dwelling;
  • Any interest in a construction/building or part of it, to be constructed or adapted for the purpose of a single dwelling, where the construction/adaptation has not begun yet, but that interest is a part of a formal contract.

It’s worth noting that simply by drawing out a plan to construct dwellings, you may not satisfy the meaning of ‘dwelling’ according to the current legislation. The example, one of the conditions of the legislation is that the construction process must be started at the effective date of the transaction.

For instance, if you buy one bungalow for the purpose of converting it to ten flats, it would qualify as multiple dwellings only if the dwelling was present on the effective transaction date, and where the construction process hasn’t begun. There are some exceptions, however, such as off-plan purchases.

How does MDR work?

Whenever MDR is claimed, the SDLT rate on the purchase price attributable to the dwelling is established via reference to the buying price, which is then divided by the total number of dwellings.

Here’s an example:

You buy five flats for a total of £1m, which means the average price per flat is £200,000. Taking into account regular SDLT rates on residential property with a value of £1m, the total SDLT rate applicable would be £71,250 – 10% SDLT will be applied on the top portion of the £1m consideration.

Now, with MDR, the transaction will be treated as if you acquired five flats individually, worth £200,000 each, as opposed to the £1m purchase, because here we have taken the total consideration of £1m and divided it by the five dwellings. In effect, the difference between the two would be significant because now the top portion of the applicable SDLT is 5% and not 10% – the latter does not take MDR into account.

Therefore, the total payable SDLT with MDR would be just £30,000 – that’s a saving of £41,250!

Are there conditions for claiming Multiple Dwellings Relief?

The relief applies where the property in a transaction consists of at least two dwellings, which have been either purchased through a single transaction or linked transactions. Any property purchase other than the dwellings (such as commercial property) does not invalidate the relief.

MDR may not be claimed if:

  • The dwelling has a higher threshold interest (e.g. 15% SDLT when it is ATED related)
  • Reconstruction relief, acquisition relief, and SDLT group relief can be claimed instead
  • Tenants are exercising their collective rights to buy the flats
  • You exercise crofting community rights to buy
  • Charities relief can be claimed instead

In this article, we have briefly touched on some of the basics of what Multiple Dwellings Relief is and how you can claim it. To learn more and make the entire process of claiming MDR easy, speak to one of our friendly Tax Accountants Slough

Further knowledge on the subject from HMRC can be found here.

 

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Published On: April 15th, 2023 / Total Views: 334 / Daily Views: 1 /

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