HMRC SDLT: SDLTM09840 – SDLT – higher rates for additional dwellings: Interaction with multiple dwellings relief – MDR

SDLT Higher Rates and Multiple Dwellings Relief

This section of the HMRC internal manual provides guidance on the interaction between the higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings and Multiple Dwellings Relief (MDR). It covers key principles and concepts, including:

  • Understanding the criteria for higher rates of SDLT on additional properties.
  • Explaining how Multiple Dwellings Relief can reduce SDLT liability.
  • Clarifying the conditions under which MDR can be applied.
  • Providing examples to illustrate the application of these rules.

Stamp Duty Land Tax (SDLT) and Multiple Dwellings Relief (MDR)

Important Changes to Multiple Dwellings Relief

  • Multiple Dwellings Relief (MDR) will no longer be available for transactions that complete or substantially perform on or after 1 June 2024.
  • This guidance applies only to transactions with an effective date before 1 June 2024.

Understanding Multiple Dwellings Relief (MDR)

Multiple Dwellings Relief allows individuals or companies purchasing two or more dwellings in a single or connected transaction to potentially reduce the amount of Stamp Duty Land Tax (SDLT) they need to pay. This relief is beneficial for real estate investors or companies purchasing multiple properties at once.

Claiming Multiple Dwellings Relief

– To claim MDR, the transaction must involve two or more dwellings.
– If a purchaser buys six or more dwellings in one transaction, they can choose either:
– To apply the non-residential rates of SDLT.
– To claim multiple dwellings relief, which will result in paying the higher residential rates.

Example of Multiple Dwellings Relief in Action

Consider a scenario where a company decides to purchase a block of 10 flats for a total price of £1,000,000.

Calculating SDLT with Multiple Dwellings Relief:
– Average price per dwelling = £1,000,000 ÷ 10 = £100,000
– SDLT is calculated as follows:
– 3% on the first £250,000 = £7,500
– Total SDLT due = 10 flats x £3,000 = £30,000

Calculating SDLT with Non-Residential Rates:
– Under non-residential rates, the SDLT would be calculated as follows:
– SDLT on the property price:
– £150,000 at 0% = £0
– £100,000 at 2% = £2,000
– Remaining £750,000 at 5% = £37,500
– Total SDLT due = £0 + £2,000 + £37,500 = £39,500

In this example, the company can choose between paying £30,000 using the multiple dwellings relief or £39,500 using non-residential rates.

Another Example with Higher Property Purchase

Now, let’s look at a different scenario where a company purchases another block of 10 flats, but this time the total purchase price is £3,000,000.

Calculating SDLT with Multiple Dwellings Relief:
– Average price per dwelling = £3,000,000 ÷ 10 = £300,000
– The SDLT is calculated as follows:
– 3% on the first £250,000:
– 3% of £250,000 = £7,500
– 8% on the remaining £50,000:
– 8% of £50,000 = £4,000
– Total SDLT due for the purchase of all flats = £7,500 + £4,000 = £11,500 per flat, leading to:
– For 10 flats, the total SDLT due = 10 x £11,500 = £115,000

Calculating SDLT with Non-Residential Rates:
– Under non-residential rates, the SDLT would be calculated as follows:
– SDLT on the property price:
– £150,000 at 0% = £0
– £100,000 at 2% = £2,000
– Remaining £2,750,000 at 5% = £137,500
– Total SDLT due = £0 + £2,000 + £137,500 = £139,500

In this case, the company can again choose between the two options:
– Using the multiple dwellings relief, they pay a total of £115,000.
– Using the non-residential rates, they pay £139,500.

Key Principles of Multiple Dwellings Relief

– Eligibility: The relief applies when purchasing two or more dwellings in one transaction.
– Choice of Relief: If six or more dwellings are bought under one deal, the buyer can decide between using the residential or non-residential rates of SDLT.
– Calculating Relief: The calculation for multiple dwellings relief involves determining the average purchase price of the properties and applying the relevant percentage rates.

Impacts of the Abolition of MDR

With the abolition of Multiple Dwellings Relief for transactions that complete or substantially perform after 1 June 2024, it is essential for both individuals and companies to carefully consider their property purchases before this date. The removal of this relief could significantly change the financial implications of buying multiple dwellings.

What to Do Before the Change Takes Effect

– Review Property Purchases: If you are planning to buy multiple properties, assess your options before the cut-off date.
– Consult Professionals: Seek advice from tax advisors or legal experts to understand how these changes could affect your investments.
– Calculate Potential Savings: Use examples and methods of SDLT calculations to estimate how much you could save by applying for MDR before 1 June 2024.

Resources for Further Help

For more detailed guidance on how to claim multiple dwellings relief and understand the SDLT calculations, you can refer to official HMRC publications or consult resources specific to Stamp Duty advice.

To learn more, visit the relevant page here: SDLTM09840 – SDLT – higher rates for additional dwellings: Interaction with multiple dwellings relief – MDR.

By understanding and taking advantage of available reliefs like Multiple Dwellings Relief, purchasers can potentially lower their SDLT liabilities and make smarter investment choices in the property market.

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Written by Land Tax Expert Nick Garner.
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