Read the original guidance here:
HMRC SDLT: SDLTM29935 – Relief for transfers involving multiple dwellings: The tax calculation FA03/SCH6B/PARA4

Guidance on SDLTM29935 – Relief for Transfers Involving Multiple Dwellings: Tax Calculation

Introduction to Multiple Dwellings Relief (MDR)

Multiple Dwellings Relief (MDR) is a tax relief aimed at reducing the Stamp Duty Land Tax (SDLT) payable when purchasing multiple residential properties in a single transaction. However, it is important to note that MDR will no longer be applicable for transactions that complete or substantially perform on or after 1 June 2024. This change is subject to specific transition rules outlined in SDLTM29902.

Special Transitional Rules

For details about transitional rules concerning linked transactions, refer to SDLTM29903.

Calculating the Amount of Tax Payable

The amount of tax you need to pay is determined by calculating two main parts:

• The tax on the part of the price that relates to the residential properties.
• The tax on the remaining part of the price (if there is any).

Apportioning Consideration

The total price, known as consideration, must be divided fairly and reasonably between the interests in dwellings and any other elements. This division ensures that the tax calculation reflects the true value attributed to the residential properties.

Tax Rates on Consideration

The different rates of tax are applied to both parts of the consideration:

• First, calculate the tax based on the consideration related to the residential properties.
• Next, calculate the tax on any remaining consideration.

Finally, add these two amounts together to arrive at the total tax due.

Chargeable Consideration

For this tax calculation, chargeable consideration can also include the market value of the property involved. This occurs under certain circumstances specified in legal provisions such as FA03/S53 or FA03/SCH4/PARA5. Additionally, an election can be made as per FA03/SCH15/PARA12A for tax purposes.

Dealing with Rent as Chargeable Consideration

If the chargeable consideration includes rent, you need to apply the regular provisions outlined in FA03/SCH5. This means you determine the tax amount on the rent following the existing rules set out in that schedule. Understanding how to calculate the rent portion is essential when assessing the overall tax liability.

Example of Tax Calculation

To clarify these principles, let’s look at an example:

• Imagine you buy two flats for £400,000 and also purchase a garage for £50,000. In this case, the total consideration is £450,000.
• To apply the MDR, you first need to determine the part of the total consideration attributable to the residential properties (the two flats). This amount is £400,000.
• The remaining consideration is the value of the garage, which is £50,000.

Applying the Tax Rates

Suppose the SDLT rates for residential properties are 0% up to £125,000, 2% from £125,001 to £250,000, and 5% on any value from £250,001 to £925,000. In this example:

• The tax on the flats (consideration of £400,000) would be calculated as follows:
  • 0% on the first £125,000 = £0
  • 2% on the amount from £125,001 to £250,000 (which is £125,000) = £2,500
  • 5% on the amount from £250,001 to £400,000 (which is £150,000) = £7,500
  • Total tax on flats = £0 + £2,500 + £7,500 = £10,000
• Now consider the garage (remaining consideration of £50,000). Since it is a non-residential property, it may attract a different SDLT rate. For this example, if the non-residential tax rate is 0% up to £150,000, the tax on the garage would be £0.

Final Total Tax Calculation

Now add the tax amounts from both considerations:

• Tax on the flats: £10,000
• Tax on the garage: £0
• Total SDLT payable = £10,000 + £0 = £10,000

Conclusion on the Calculation Process

This example illustrates how to navigate through the tax calculation when properties are purchased as part of a multiple dwelling transaction. The careful consideration of the relevant rates and appropriate apportioning of the total consideration are important steps in ensuring compliance with SDLT regulations.