• Home
  • >
  • Blogs
  • >
  • Abolition of Multiple Dwelling Relief

Abolition of Multiple Dwelling Relief

Published by Simran Baniya
Published Date: April 18, 2024

There’s a change coming to the Stamp Duty Land Tax (SDLT) regime regarding the bulk purchases of dwellings, effective from 1 June 2024. As announced in the Spring Budget 2024, the government will introduce legislation in the Spring Finance Bill 2024 abolishing Multiple Dwellings Relief (MDR) in England and Northern Ireland.

Transitional Period

There are transitional rules in place whereby the MDR can still be claimed for contracts exchanged on or before 6 March 2024, regardless of when the completion takes place. The purchases that are completed before 1 June 2024, are also likely to benefit from the MDR relief.

What is Multiple Dwellings Relief?

Multiple Dwellings Relief (MDR) is a provision in the Stamp Duty legislation introduced in 2011 to alleviate the tax burden on the purchasers purchasing multiple residential properties in a single transaction or linked transaction. MDR allowed for a reduced rate of SDLT to be applied to the overall purchase price when multiple residential properties form part of the same transaction.

What is Multiple Dwelling Relief?
Under MDR, SDLT is calculated based on the average value of a single property in the whole transaction. The total amount of the Stamp Duty Land Tax (SDLT) cannot be less than 1% of the value of the properties.

Example 1

David is purchasing three Buy-to-Let residential flats in a single transaction. The purchase price for Flat 1 and Flat 2 is £500,000 each, whereas the purchase price for Flat 3 is £800,000. Hence, the total Purchase Price is £1,800,000.

Property or Lease Premium or Transfer Value

SDLT Rates

SDLT Calculation without MDR

SDLT Calculation with MDR

Up to £250,000

3%

£250,000*3%
= £7,500

£250,000*3% = £7,500*3  = £22,500

£250,000 to £925,000

8%

£675,000*8%
= £54,000

£350,000*8% = £28,000*3 = £84,000

£925,000 to £1,500,000

13%

£575,000*13%
= £74,750

Cell

£1,500,000 and above

15%

£300,000*15%
= £45,000

Cell

Total SDLT

Cell

£181,250

£106,500

By applying the MDR for property worth £1.8m, the savings on SDLT would be £74,750.

Six or More Rule

Six or more residential properties are considered as non-residential purchases. However, a purchaser has a choice either to apply the six or more rule to the transaction and charge according to the non-residential rates or claim MDR. Hence, the buyer can choose the option that will give them the SDLT tax advantage.

After the abolition of MDR, purchases of six or more dwellings in a single transaction will be assessed according to the non-residential rates of SDLT.

Multiple Dwelling Relief and Mixed-Use Property

Multiple Dwelling Relief and Mixed-Use Property

A mixed-use property combines both residential and non-residential elements to the properties. Mixed-use property ranges from a farmhouse with some land let for grazing to fast food shops with flats above. When dealing with mixed-use property, it can be approached in two separate ways:

Approach 1: Treat as Non-Residential Property and Pay Non-Residential Property Rates

A mixed-use property has non-residential elements. Hence, the purchases of mixed-use properties can be wholly charged to the non-residential rates of SDLT, which are lower than the residential rates. Since mixed-use properties are classified as non-residential, the additional 3% surcharge applicable to residential property would not apply.

Approach 2: For the Residential Portion, Claim MDR by Applying the Residential Rates and for the Non-Residential Portion, Pay SDLT At the Appropriate Percentage of Non-residential SDLT Amount.

Under this approach, the mixed-use property is divided into residential elements and non-residential elements. The residential portion is then charged SDLT at residential rates.

Non-residential elements are calculated as the appropriate percentage of the total non-residential SDLT as summarised from Step 1 to Step 4.

Step 1: Non-Residential Property Price

Step 2: Total Property Price

Step 3: SDLT on Total Property calculated at non-residential rates.

Step 4: (Step 1/Step 2)*Step 3

The SDLT is then summed to arrive at the final SDLT figures.

Example 2

A person is buying a property which has two flats above the shop. The cost of one flat is £200,000 whereas the cost of another flat is £300,000. The cost of the shop is £200,000.

Using Approach 1 

The SDLT is calculated by considering the entire purchase as a non-residential portion and applying the non-residential rates.

Non-Residential Freehold Property

SDLT Rates

SDLT Calculation

Up to £150,000

0%

£150,000*0% = £0

£150,000 to £250,000

2%

£100,000*2% = £2,000

£250,000 and above

5%

£450,000*5% = £22,500

Total SDLT

Cell

£24,500

Using Approach 2

The SDLT is calculated by dividing the properties between the residential elements (£500,000) and non-residential elements (£200,000). Flats are residential properties for which residential rates would apply, whereas, for the shop, we would apply steps 1 to 4 to calculate the non-residential SDLT amount.

SDLT Calculation for Residential Portion

Property or Lease Premium or Transfer Value

SDLT Rates

SDLT Calculation with MDR

Up to £250,000

0%

£250,000*0% = £0*2 = £0
(Subject to a Minimum of 1% of £500,000 = £5,000)

£250,000 to £925,000

5%


£925,000 to £1,500,000

10%


£1,500,000 and above

12%


Total SDLT

Cell

£5,000

SDLT Calculation for Non-Residential Portion

We will calculate SDLT as follows:

Step 1: Non-Residential Property Price = £200,000

Step 2: Total Property Price = £700,000

Step 3: SDLT on Total Property calculated at non-residential rates = £24,500

Step 4: (Step 1/Step 2)*Step 3 = (£200,000/£700,000)*£24,500 = £7,000

Under Approach 2, the SDLT payable would be £5,000 for the residential portion, whereas £7,000 for the non-residential portion, resulting in a total SDLT payable of £12,000.

To summarise, the SDLT payable under Approach 1 is £24,500, whereas under Approach 2 it would be £12,000. Hence, Approach 2 is beneficial when MDR is applied.

Conclusion

The change to MDR is likely to affect individuals, developers, or investors in the long run. It will only increase the SDLT payable by individuals purchasing two or more dwellings in a single or linked transaction and may affect the affordability of purchasing multiple dwellings. But for now, there is a small window of opportunity to buy the multiple dwellings and avail the SDLT Relief in the form of MDR.

Simran Baniya
Latest posts by Simran Baniya (see all)
Our Complete Guides
Related Posts

Trust UK Property Accountants to Optimise Returns and Minimise Hassles!

Reach Out to Us Today and Let's Shape
Your Success Together!

Success message!
Warning message!
Error message!