The government brought Multiple Dwellings Relief (MDR) in 2011 to encourage investment in residential property.
MDR is available for purchasers of residential property who acquire interests in more than one dwelling in a single or linked transaction. The purpose of the multiple dwellings relief is to reduce the rate of SDLT on the purchase of more than one dwelling closer to the rate that would apply if the dwellings were purchased separately in a different transaction.
Meaning of Dwellings for MDR
Multiple dwellings relief legislation defines a dwelling as:
- A building or part of the building which is suitable for use as a single dwelling or is in the process of being constructed or adapted to such use;
- Land that is to be occupied or enjoyed with a dwelling, such as garden or grounds;
- Land that subsists (or will subsist) for the benefit of a dwelling; and
- Any interest in a building or part of a building which is to be constructed or adapted for such use as a single dwelling, construction of adaption of which has not yet begun where that interest is included in a substantially performed contract.
Note: Just having a plan to construct dwellings does not satisfy the meaning of dwelling. The process of construction should have been started at the effective date of the transaction. For example, the purchase of one bungalow which the buyer wants to convert to five flats would qualify as multiple dwellings as only dwelling was present at the effective date of transaction and the process of construction hasn't yet started. However, there are some exceptions in the case of off-plan purchases.
Multiple Dwellings Relief: The Basics
MDR is a tax relief introduced by HMRC to reduce barriers to investment in residential property. The relief applies where the main subject matter of any transaction contains at least two dwellings.
Where the relevant conditions are met, the relief operates to reduce the rate of SDLT payable on acquisitions of multiple residential properties.
Multiple Dwellings Relief applies where the transaction contains at least two dwellings. These can be either a linked transaction or one of a single transaction. Multiple Dwellings Relief does not apply automatically, it must be claimed.
Properties of the following kinds are applicable for Multiple Dwellings Relief:
- 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)
Multiple Dwellings Relief was introduced by the HMRC in 2011.
Yes, MDR can be claimed retrospectively. MDR relief on SDLT can be amended or claimed when not included in the previous return. Such amendments can be filed up to twelve months after filing the original return.
How Multiple Dwellings Relief (MDR) works?
Where Multiple dwellings relief is claimed, the rate of SDLT which applies to the purchase price attributable to the dwellings is determined by reference to the amount of the price, divided by the number of dwellings.
For example, Propco buys five flats for £1 million, resulting in average price of £200,000. With regular SDLT rates on residential property of £1 million, the total SDLT payable would be £71,250, with 10% SDLT being applied on the top slice of the £1 million consideration.
However, with MDR, it is treated as Propco acquired five flats of £200,000 each separately (total consideration of £1 million divided by five dwellings). The effect of this would be significant as the top slice of SDLT applied would be only 5% instead of 10% without MDR. The total SDLT payable with MDR would only be £30,000, resulting in a saving of £ 41,250 with MDR.
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Conditions for Multiple Dwellings Relief
The relief applies where the main subject matter of a transaction contains at least two dwellings. These can be purchased in linked transactions or one transaction. The purchase of property other than the dwellings (e.g. commercial property) will not invalidate the relief.
The relief cannot be claimed where:
- The dwelling is higher threshold interest such as ATED related 15% SDLT
- SDLT group relief, reconstruction relief, and acquisition relief could be claimed
- There is an exercise of collective rights to buy by tenants of flats
- Charites relief could be claimed
- Crofting community rights to buy are exercised
Minimum Rate Under MDR 1% or 3%?
As per MDR relief legislation, the minimum rate under MDR would be 1%. This would be the case where the average consideration falls within the 0% SDLT threshold or only slightly reaches the 2% threshold. However, with the introduction of a 3% additional surcharge, the minimum SDLT that applies under MDR would be 3% instead of 1%.
However, there can be a special situation where MDR can be claimed without a 3% surcharge being applied (resulting in the default 1% minimum instead of 3%). Some of such situations can be:
- Where one dwelling is bought in one transaction and another in a linked transaction
- Where granny annex or subsidiary dwelling is purchased together with the main dwelling
Is Multiple Dwellings Relief Available for Non-Residents?
Yes, Multiple dwellings relief is available on the purchase of multiple dwellings subject to the higher rates payable by non-UK resident purchasers. The rate of tax on the average consideration will considers the non-resident rates and, if applicable, the rates payable to purchases of additional residential properties.
Multiple Dwellings Relief: Clawback
If an acquisition has been made and the relief claimed and obtained, it is clawed back if events of certain types occur subsequently, events which give rise to a situation where relief is presumably thought not to be merited. The rule is that if, in the period ending:
- Three years from the effective date of the purchase; or
- If earlier, on the date the purchaser disposes of the dwelling in question on to someone unconnected with him,
An event, change of circumstance or change of plan occurs, which, had it occurred immediately before the effective date of the original purchase, would have denied or reduced the relief, the tax on that purchase is recalculated accordingly. Within 30 days of the event, the purchaser must send in an SDLT return and pay the extra tax.
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MDR: Superior Interests and Long Leases
In the case of a dwelling subject to a lease granted for an initial term of more than 21 years, superior interest in relation to the lease cannot be taken into account in determining whether MDR relief if available or not.
HMRC guidance SDLTM29930 gives the following examples in this regard - a purchaser acquires the freehold of a block of four flats. The transaction is not linked with any other transaction.
- Where two of the four flats are tenanted under long leases, the transaction is a relevant transaction, the main subject-matter of which includes two dwellings, i.e. the two flats not tenanted under long leases.
- If three of the four flats are tenanted under long leases, the transaction is not a relevant transaction because only one flat can be taken into account, i.e. that which is not tenanted.
Multiple Dwellings Relief and Shared Ownership
The restriction on the availability of relief by virtue of superior interest rule above is disapplied in shared-ownership cases where:
- The vendor is a registered social landlord or other qualifying body
- The transaction is a sale under a sale and lease-back arrangement
- The sale is the grant of a leasehold interest, and
- The lease-back element of that arrangement is exempt from charge under section 57A of Finance Act 2003
Multiple Dwellings Relief and Property Classification
A linked transaction under stamp duty land tax (SDLT) is in which the same purchaser and seller undertake multiple property transactions.
Stamp duty land tax (SDLT) rates in a linked transaction is applicable on the value of collective properties, therefore the rate is potentially higher than that applicable for an individual property.
HMRC counts transactions as Linked if,
- There’s more than one transaction
- The transactions are between the same buyer and seller or between people connected with either of them
- The transaction are part of a single arrangement or scheme or part of a series of transactions
Connected persons, include relative, brothers, sisters, parents, grandparents, husbands, wife, or civil partner. In cases where buyer and seller are a business, a connected person would be a business partner and their relatives.
Mixed-use properties are possessing both residential and non-residential features. A building with a shop and blocks of residential flats above it qualifies as mixed-use property.
The relief is only available for residential part of the transaction and normal non-residential SDLT rates apply to non-residential elements.
MDR and Off-Plan Purchases
There is a special rule for off-plan purchases for MDR. If the following conditions are met, for MDR, the main subject-matter of the transaction will be taken to consist or include an interest in the dwelling:
- There is a contract to purchase a building, or part of a building, which is to be constructed or adapted under the contract for use as dwelling or dwellings,
- The contract is substantially performed by the purchase (generally by payment of 90% or more of the price) before the construction of adaption and
- The effective date of the transaction is deemed to be the date of substantial performance.
Student Accommodation and Multiple Dwellings Relief
Student accommodation may either be residential (or dwellings) or non-residential property. Student accommodation falls under three broad categories:
Propco acquires a block of flats available only to students. Each floor consists of a lockable entrance door from a communal stairwell and a number of individual study bedrooms, each with en-suite facilities, but only one communal kitchen and living area. This falls under residential accommodation for students other than student halls of residence.
Therefore, a higher rate of SDLT will not apply, but MDR may be claimed. For the purposes of MDR, each floor (not each bedroom) within the block will be treated as used or suitable for use as a single dwelling. The same treatment would apply if the en-suite facilities were instead single shared bathroom facilities on each floor.
MDR and Companies
MDR is applicable to companies as well. There are several conditions which qualify companies for MDR. If a company purchases the following qualifying dwellings, then it can qualify for MDR:
- Property rental businesses.
- Property developer or trader.
- Used in a trade involving making the property available to the public.
- Bought by a financial institution while lending.
- Occupied by employees of the purchaser.
- A farmhouse.
- Bought by a qualifying housing co-operative.
MDR Examples from HMRC Guidance
Following are some of the examples on MDR obtained from HMRC SDLT Manual:
Example 1: MDR and Higher Rates of SDLT
The freehold of a new block of 20 flats is purchased for £2.5 million. There is no headlease and none of the flats is subject to a long lease.
The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling - i.e. the 20 flats. The freehold is treated as if it were interests in the individual dwellings. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 0% SDLT threshold but a minimum rate of tax under the relief applies.
If the other conditions are met MDR can be claimed but in almost all examples like this the higher rate for additional dwellings will apply. The higher rate was introduced on transactions with an effective date on or after 1 April 2016. The higher rate adds 3% to the standard SDLT rates.
If the purchaser is not UK resident, then the non-resident rates may also apply to the transaction, adding a further 2% to the standard rates or the higher rates for additional dwellings, if applicable. The non-resident rates of SDLT were introduced for transactions with an effective date on or after 1 April 2021.
Example 2: MDR with Long Leases
The freehold of a block of 10 flats is purchased for £1.4 million. There is no headlease, but five flats are let on 99-year leases.
The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling - i.e. the five untenanted flats. The freehold is treated as if it were interests in the individual dwellings. The chargeable consideration is apportioned between the five untenanted flats (£1,250,000) and the five tenanted flats (£150,000).
The rate of tax on the consideration attributed to the untenanted flats is set by the amount of that consideration divided by the number of dwellings concerned, the tax should be calculated, and this figure is then multiplied by 5 to give the total amount of SDLT payable.
The higher rate for additional dwellings will be applicable. The non-resident rates of SDLT may also be applicable if any purchaser is not UK resident.
The rate of tax on the consideration attributed to the tenanted flats is set by the chargeable consideration for the transaction (£1.4 million). As the transaction involves six or more dwellings, it can be treated as involving non-residential property.
Example 3: MDR and Freehold Reversion
The freehold reversion of a block of 20 flats is purchased. A 999-year headlease over the whole block has been granted to a company controlled by the tenants, with ten flats let on 99-year leases and the rest on leases of 21 years or less.
The transfer of the reversion is not a relevant transaction for the purposes of the relief as all the dwellings are subject to the 999-year headlease (a lease of more than 21 years). No relief is due. (If the transfer had been of the headlease this would be a relevant transaction in respect of the ten flats subject to leases of 21 years or less.)
Example 4: MDR with Commercial Property
The freeholds of four houses and two shops are purchased in separate linked transactions. The total linked transaction value is £1,500,000
The transactions involving the houses are relevant transactions for the purposes of the relief. Two of the houses cost £250,000 and two cost £350,000 so the dwellings on which MDR can be claimed have a value of £1,200,000 and the SDLT should be based on this figure. This is calculated based on £1,200,000 divided by 4. The tax is calculated on this figure and then multiplied by 4. The higher rate for additional dwellings will be applicable.
The transactions involving the shops are not relevant transactions for the purpose of the relief. The shops cost £150,000 each so the non-residential element totals £300,000 however we have to calculate the tax on this sum based on the total transaction value of £1,500,000 The total tax on £1,500,000 should be apportioned to the non-residential consideration of £300,000, i.e. calculate the tax due on the £1,500,000 then multiply by 20% to arrive at the tax due.
Example 5: Clawback of MDR
The freehold of a building divided into six flats is purchased for £1.2 million and relief is claimed. The flats are let on Assured Shorthold tenancies but, two years later, the tenancies cease, and the purchaser begins work to convert the building into a hotel.
At the time of purchase, the transaction is a relevant transaction as it involves the acquisition of more than one dwelling - i.e. the superior interest in six flats where the term of the lease is 21 years or less. The rate of tax is set by the total consideration given, divided by the number of dwellings. The higher rate for additional dwellings will be applicable.
When conversion work starts (within three years of the effective date of the transaction), the flats cease to be suitable for use as dwellings. The change is deemed to have taken place immediately before the purchase, so the transaction ceases to be a relevant transaction. The rate of tax is now set solely by the consideration given. The subject-matter of the transaction is now non-residential.
The purchaser is required to make a further return and pay additional tax within 30 days of conversion work starting.
First Tier Tribunal and Precedents on Multiple Dwellings Relief
HMRC is actively cracking down on claims on Multiple Dwellings Relief. Claims on Multiple Dwellings Relief depends on numerous factors that contribute to qualifying for the relief. Factors like secure doors, privacy, living area and kitchen contribute to the accommodation being considered eligible as a single dwelling.
Below is a recent FTT case law that demonstrates the path HMRC considers for Multiple Dwellings Relief claims.
In Fiander & Anor  TC 07676, the main house and an annexe acquired as parts of a residential property and each with its own living accommodation and connected by a short, open corridor were held not to constitute a single dwelling, such that the transaction did not qualify for the relief. The Upper Tribunal ( BTC 534) upheld the decision and set out a series of ‘observations’ on the meaning of ‘suitable for use as a single dwelling’ which are likely to become the yardstick for the future decisions in this area. In this particular case, the access from the main part of the house was by a corridor that had door jambs but there was no actual door and the purchaser could not say that there had ever been one. A lockable door would potentially have given a different result.
Does UK Property Accountants Advise or Process MDR Claim?
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