Example 6: Tax Relief for Converting Multiple Flats into a Hotel

When multiple dwellings relief can be withdrawn after flats are converted into a hotel

HMRC’s example shows that SDLT treatment is not always final at completion. If a buyer claims multiple dwellings relief on a block of flats and, within three years, starts works that make the flats no longer suitable for use as dwellings, the original purchase may be reclassified. The relief can be withdrawn, SDLT recalculated on a non-residential basis, and a further return with any extra tax must usually be filed within 30 days.

• Multiple dwellings relief can reduce SDLT where a purchase includes more than one dwelling, usually by using the average price per dwelling.
• If flats stop being suitable for use as dwellings within three years of completion, the law can treat that change as if it happened immediately before the purchase.
• In HMRC’s example, six flats bought for £1.2 million were later converted into a hotel, and the relief was lost when the conversion works began.
• Once the rule applies, the original transaction is no longer treated as one involving multiple dwellings and SDLT is recalculated without the relief, on a non-residential basis.
• The key factual issue is often the point when the properties cease to be suitable as dwellings; HMRC treats the start of hotel conversion works as enough in its example.
• Buyers should monitor redevelopment plans for three years after completion, as a later change can trigger extra SDLT and a further return.

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Multiple dwellings relief can be withdrawn if flats are later converted into a hotel

This page explains an HMRC example about what happens when a buyer claims multiple dwellings relief on a block of flats, but then starts conversion works within three years so the flats stop being suitable for use as dwellings. The key point is that SDLT is not always fixed permanently by the position at completion. In some cases, a later change can rewrite the SDLT treatment of the original purchase.

What this rule is about

Multiple dwellings relief can apply where a land transaction involves more than one dwelling. Broadly, the relief works by calculating SDLT using the average price per dwelling rather than taxing the full price in one block. That can reduce the tax due.

But the relief depends on the transaction remaining a “relevant transaction” for these purposes. If, within the statutory period, a later event means the properties are treated as not having been dwellings after all, the original SDLT position can change retrospectively.

The HMRC example deals with a building containing six flats. At purchase, each flat counts as a dwelling. Later, the buyer starts works to convert the building into a hotel. Once those works begin, the flats cease to be suitable for use as dwellings. That matters because the SDLT rules treat that change as if it had happened immediately before the purchase.

What the official source says

HMRC’s example starts with the purchase of the freehold of a building divided into six flats for £1.2 million. The flats are let on assured shorthold tenancies. At the date of purchase, the buyer acquires the superior interest in six dwellings where the lease terms are 21 years or less. On that basis, the purchase is a relevant transaction involving more than one dwelling, so multiple dwellings relief is available.

HMRC says that, at that stage, the SDLT rate is determined by dividing the total consideration by the number of dwellings. HMRC also states that the higher rates for additional dwellings apply, and that the non-resident rates may also apply if any purchaser is not UK resident.

Two years later, the tenancies end and the buyer begins work to convert the building into a hotel. HMRC’s view is that, when those conversion works start, the flats cease to be suitable for use as dwellings. Because this happens within three years of the effective date of the transaction, the law deems the change to have taken place immediately before the purchase.

The result is that the original purchase is no longer treated as a relevant transaction for multiple dwellings relief. SDLT must then be recalculated without that relief. HMRC also says the subject matter of the transaction is now non-residential, and the tax rate is set solely by the total consideration given rather than by averaging across dwellings.

The buyer must file a further return and pay any additional SDLT within 30 days of the conversion work starting.

What this means in practice

The practical effect is significant. A buyer may complete a purchase on the basis that they are acquiring several dwellings and calculate SDLT using multiple dwellings relief. If, within three years, they start works that mean those units are no longer suitable for use as dwellings, that original SDLT treatment may be undone.

This is not just a prospective change. HMRC’s example shows that the later event is treated as if it had already happened immediately before completion. So the buyer must revisit the original SDLT calculation and work out what tax would have been due if the property had been non-residential at that time.

That can produce additional SDLT to pay. It also means the buyer cannot assume that claiming relief on completion is the end of the matter. If redevelopment is planned, the SDLT position may need to be monitored for three years after the effective date.

The example also shows that a building can move from being treated as multiple dwellings at completion to being treated as non-residential because of later works. That change affects the character of the original transaction for SDLT purposes.

How to analyse it

A sensible way to analyse this type of case is to ask the following questions.

• At the effective date of the transaction, were there two or more dwellings involved?
• Is the interest acquired a superior interest in dwellings subject to leases of 21 years or less?
• Was multiple dwellings relief claimed on the original SDLT return?
• Within three years of the effective date, has anything happened that means the units cease to be suitable for use as dwellings?
• If works have started, is the change substantial enough that the flats are no longer suitable for use as dwellings, rather than merely being refurbished or improved?
• If the rule is triggered, what would the SDLT have been if the property had been treated that way immediately before completion?
• Has a further return been filed, and has any extra SDLT been paid within the required 30-day period?

The key factual issue is often the point at which the flats cease to be suitable for use as dwellings. In HMRC’s example, that happens when conversion to a hotel begins. The source does not give a full legal test for suitability, but it makes clear that starting hotel conversion works can cross the line.

Example

A company buys the freehold of a converted building containing six self-contained flats, all let on short tenancies, for £1.2 million. On completion, each flat is a dwelling, so the company claims multiple dwellings relief and calculates SDLT by reference to the average price per flat.

Two years later, after the tenancies end, the company starts works to strip out the flats and reconfigure the building as a hotel. Under HMRC’s example, the flats cease to be suitable for use as dwellings when those works start. Because this happens within three years of completion, the SDLT treatment of the original purchase is revisited. The purchase is no longer treated as one involving multiple dwellings, and SDLT must be recalculated on the basis that the subject matter is non-residential. The company must submit a further return and pay any extra tax within 30 days.

Why this can be difficult in practice

The difficult point is usually not whether a hotel is non-residential. It is identifying exactly when the dwellings stopped being suitable for use as dwellings.

That can be fact-sensitive. Minor works, empty possession, or an intention to redevelop may not by themselves answer the question. HMRC’s example focuses on the start of conversion works and treats that as the decisive moment. In real cases, the exact nature of the works may matter.

Another practical difficulty is that the later event changes the SDLT analysis of an earlier transaction. Buyers and advisers may not revisit the original return unless they are alert to the three-year rule. This is especially important where a purchase was structured and priced on the assumption that multiple dwellings relief would remain available.

The interaction with other SDLT rates can also be easy to overlook. HMRC notes that the higher rates for additional dwellings applied at the outset, and that non-resident rates may also have applied depending on the purchaser’s residence status. The source does not work through how those rates interact with the later recalculation, so care is needed in applying the wider SDLT rules to the revised position.

Key takeaways

• A purchase can qualify for multiple dwellings relief at completion but lose that treatment if the dwellings cease to be suitable for use as dwellings within three years.
• If conversion works to a hotel begin within that period, HMRC’s example treats the change as happening immediately before the purchase, so the original SDLT calculation must be redone.
• Where the rule is triggered, the buyer must file a further SDLT return and pay any additional tax within 30 days of the relevant event.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 6: Tax Relief for Converting Multiple Flats into a Hotel

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