Example 4: Tax Relief for Multi-Dwelling Transfers Involving Residential and Non-

Multiple dwellings relief on a mixed-use headlease

HMRC’s example shows that when a buyer takes a long headlease over a building with both flats and shops, SDLT may need to be split between different parts of the same deal. Multiple dwellings relief applies only to the three untenanted flats, while the premium linked to the two flats already under long underleases and the shops is taxed separately under mixed-use, non-residential rules. Rent under the lease is also taxed separately on its net present value.

• The example concerns a 999-year headlease over five flats and four shops for a £1.25 million premium plus £6,000 annual rent.
• Only the three untenanted flats count for multiple dwellings relief; HMRC does not allow the relief on the whole premium.
• HMRC apportions the premium as £750,000 to the three qualifying flats, £100,000 to the two tenanted flats, and £400,000 to the shops.
• For the three qualifying flats, SDLT is worked out by averaging the £750,000 across the three dwellings, calculating tax on £250,000, then multiplying that result by three.
• The remaining £500,000 for the two tenanted flats and four shops is treated as mixed-use and taxed using non-residential rates, with the rate determined by the total £1.25 million premium.
• A meaningful non-residential element means the higher rates for additional dwellings do not apply, but the non-resident surcharge may still apply to the residential element if relevant.

Scroll down for the full analysis.

Multiple dwellings relief on a mixed-use headlease: how HMRC’s example works

This page explains an HMRC example about multiple dwellings relief where a buyer takes a long headlease over a building containing flats and shops. The example matters because it shows that different parts of the same transaction can be taxed in different ways. In particular, only certain flats qualify for multiple dwellings relief, while the rest of the premium is taxed under the mixed-use rules.

What this rule is about

Multiple dwellings relief can apply where a land transaction includes more than one dwelling. Broadly, the relief works by finding the SDLT rate on the average price per dwelling, then multiplying that tax by the number of dwellings.

But that is not the end of the analysis. A transaction may also include non-residential property, such as shops, and it may include flats that are already subject to long underleases. In that situation, you cannot assume that the whole premium is treated as consideration for dwellings acquired for the purposes of the relief.

HMRC’s example deals with a long headlease over a block containing both flats and shops. Some flats are untenanted and some are already let on long underleases. The example shows how the premium is split between those different elements, and how SDLT is then calculated separately on each part.

What the official source says

The source example involves the purchase of a 999-year headlease over five flats and four lock-up shops for:

• a premium of £1.25 million, and
• annual rent of £6,000.

Two of the five flats are subject to 99-year underleases. HMRC treats the transaction as a relevant transaction for multiple dwellings relief because it includes the acquisition of more than one dwelling, namely the three untenanted flats.

HMRC then apportions the lease premium as follows:

• £750,000 to the three untenanted flats
• £100,000 to the two tenanted flats
• £400,000 to the four shops

For the three untenanted flats, the SDLT rate is determined by dividing the premium attributed to those flats by the number of dwellings. That gives £250,000 per dwelling. The tax due on those flats is the tax on £250,000, multiplied by 3.

HMRC also says the higher rates for additional dwellings do not apply because the transaction has a non-residential element that is not negligible. The non-resident surcharge may still apply to the residential element if a purchaser is not UK resident.

For the £500,000 attributed to the two tenanted flats and the four shops, HMRC says the rate of tax is set by the total premium of £1.25 million. Because that part of the transaction involves both residential and non-residential property, the tax is calculated using the non-residential rates.

The rent is dealt with separately. SDLT on the net present value of the rent is calculated in the usual way. HMRC again notes that the non-resident rates may apply if relevant.

What this means in practice

The key practical point is that you must identify exactly what interest in each part of the building is being acquired.

In HMRC’s example, the buyer acquires a headlease over the whole block. But for SDLT purposes, the three untenanted flats are treated differently from the two flats already subject to long underleases. HMRC’s view is that the relief operates by reference to the three dwellings that are actually acquired in a way that counts for the relief.

That means:

• the premium attributable to the three qualifying flats is taken into the multiple dwellings relief calculation, and
• the premium attributable to the two tenanted flats and the shops is taxed separately under the mixed-use, non-residential rules.

This is important because it prevents a buyer from simply applying multiple dwellings relief to the whole £1.25 million premium. HMRC’s example does not allow that.

The example also shows that the presence of a meaningful non-residential element changes the surcharge analysis. HMRC says the higher rates for additional dwellings do not apply because the non-residential element is not negligible. That reflects the wider SDLT treatment of mixed-use transactions.

At the same time, the non-resident surcharge may still need to be considered for the residential element. So a mixed-use transaction can escape the higher rates for additional dwellings while still potentially attracting the non-resident surcharge on the residential part.

How to analyse it

When looking at a transaction of this kind, it helps to work through the following questions in order.

• What property is included in the transaction? Identify each flat, shop, and any other element.
• What interest is being acquired in each part? A direct lease of a flat may be treated differently from a reversionary or headlease interest where a long underlease already exists.
• How many dwellings are actually relevant for multiple dwellings relief? Do not assume every flat in the building counts in the same way.
• How should the premium be apportioned between the different elements? The calculation depends on this step.
• Is there a non-residential element, and is it more than negligible? If so, the higher rates for additional dwellings may not apply.
• Does the non-resident surcharge need to be considered for any residential element?
• Is there rent under the lease? If so, calculate SDLT on the net present value of that rent separately in the usual way.

The apportionment exercise is especially important. HMRC’s example assumes a specific split of the premium between the untenanted flats, the tenanted flats, and the shops. Without a proper apportionment, the SDLT calculation cannot be done correctly.

Example

Illustration based on HMRC’s example:

A buyer takes a 999-year headlease over a block for a £1.25 million premium and £6,000 annual rent. The block contains five flats and four shops. Two of the flats are already let on 99-year underleases.

The premium is apportioned like this:

• £750,000 for the three untenanted flats
• £100,000 for the two flats already subject to underleases
• £400,000 for the four shops

For the three untenanted flats, the buyer uses multiple dwellings relief. The average consideration per dwelling is £750,000 divided by 3, which is £250,000. SDLT is calculated on £250,000, and that result is multiplied by 3.

The remaining £500,000 relates to the two tenanted flats and the shops. HMRC treats that part as mixed residential and non-residential property, taxed using non-residential rates, with the rate determined by reference to the total premium of £1.25 million.

Any SDLT due on the rent is then calculated separately on the net present value of the £6,000 annual rent.

Why this can be difficult in practice

The hardest part is often deciding what has really been acquired in relation to flats that are already subject to long leases. A building may physically contain several dwellings, but that does not mean each one is acquired in the same way for multiple dwellings relief purposes.

Another difficulty is apportionment. HMRC’s example gives the figures, but real transactions often do not. The premium must be split on a justifiable basis between qualifying dwellings, other residential interests, and non-residential property.

There is also room for confusion between different SDLT regimes:

• multiple dwellings relief, which may apply to certain dwellings acquired
• mixed-use treatment, which may bring in non-residential rates
• the higher rates for additional dwellings, which HMRC says do not apply here because the non-residential element is not negligible
• the non-resident surcharge, which may still apply to the residential element

These rules do not all operate in the same way. A transaction can fall outside one surcharge and still be affected by another.

Key takeaways

• In a mixed-use headlease transaction, multiple dwellings relief does not necessarily apply to the whole premium.
• You need to identify which dwellings are actually relevant for the relief and apportion the premium accordingly.
• A significant non-residential element can prevent the higher rates for additional dwellings from applying, but the non-resident surcharge may still need to be considered for the residential part.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 4: Tax Relief for Multi-Dwelling Transfers Involving Residential and Non-

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