Guide on Claiming Multiple Dwellings Relief and Calculating Land and Buildings Transaction Tax
LBTT Multiple Dwellings Relief: how it works and how tax is calculated
Multiple Dwellings Relief (MDR) can reduce Land and Buildings Transaction Tax (LBTT) when a buyer acquires more than one dwelling in a single transaction or in linked transactions. It works by calculating tax on the average price per dwelling rather than on the full combined price, but it does not remove the tax completely because a minimum amount must still be paid.
- MDR is usually available where 2 or more dwellings are bought together, and it can still apply if the purchase also includes non-residential property.
- The main calculation is based on the average consideration per dwelling, with any tax on other property worked out separately on a just and reasonable basis.
- The final LBTT bill is the higher of the MDR calculation or the minimum prescribed amount, which is generally 25% of the tax due without MDR for the dwelling element.
- MDR can still be relevant where the Additional Dwelling Supplement (ADS) applies, but the method may differ and the result can be more complex.
- MDR cannot be claimed if certain other reliefs apply, including crofting community right to buy relief, group relief, reconstruction relief, acquisition relief or charities relief.
- The relief is not always beneficial, especially where there are linked transactions, mixed property, ADS issues or valuation disputes over what part of the price relates to the dwellings.
Scroll down for the full analysis.
Read the original guidance here:
Guide on Claiming Multiple Dwellings Relief and Calculating Land and Buildings Transaction Tax
LBTT multiple dwellings relief: what it does and how it is calculated
Multiple dwellings relief, usually called MDR, can reduce Land and Buildings Transaction Tax when a buyer acquires more than one dwelling in a single transaction or in linked transactions. The point of the relief is to stop the tax bill being pushed up unfairly by applying higher residential rates to the full combined price as if it were one dwelling. But the relief is only partial. A minimum amount of tax must still be paid, and the calculation can be technical.
What this rule is about
MDR applies where a transaction includes more than one dwelling. It can also apply where the purchase includes other property that is not a dwelling, such as non-residential land or buildings, as long as there are multiple dwellings in the transaction or linked transactions.
The policy behind the relief is straightforward. If several dwellings are bought together, taxing the whole price as one residential purchase may produce a higher effective rate than if each dwelling had been bought separately. MDR adjusts the calculation so that lower rate bands are taken into account more fairly.
This is an LBTT relief, so it reduces the tax rather than removing it entirely. The legislation also requires a minimum prescribed amount of tax to be paid.
What the official source says
The Revenue Scotland guidance says MDR is available on most transactions involving the purchase of more than one dwelling in a single transaction or in a series of linked transactions. It also says the relief is available on most transactions involving multiple residential dwellings even if one or more transactions also include non-residential property.
The guidance explains that MDR and the additional dwelling supplement, or ADS, can overlap. If ADS applies, MDR may still be available. It also says MDR may be available where 6 or more residential properties are bought in a single transaction, even though those purchases are relieved from ADS and treated as non-residential for that purpose.
MDR can be claimed either in the original LBTT return or by amending the return.
The guidance also lists cases where MDR cannot be claimed. It is not available if crofting community right to buy relief is available. It is also not available if group relief, reconstruction relief, acquisition relief or charities relief is available for the transaction, or was available and has since been withdrawn.
The guidance further states that MDR can be withdrawn in full or in part if something happens within a relevant period and, if that event had happened immediately before the effective date of the transaction, the relief would not have been due.
For calculation, the guidance points to schedule 5 part 4 of the Land and Buildings Transaction Tax (Scotland) Act 2013 and the prescribed proportions order for the minimum amount.
What this means in practice
In practical terms, MDR changes the way residential LBTT is computed. Instead of applying residential rates to the whole price for all dwellings together, you work out a tax figure based on the average consideration per dwelling, then multiply that by the number of dwellings. If there is other property in the deal, a separate amount is allocated to that remaining property.
But the relief is capped by a minimum tax rule. You do not simply take the MDR calculation if it produces a very low result. You must compare the normal MDR result with the minimum prescribed amount and pay the higher figure.
This means MDR is not always worthwhile. Revenue Scotland expressly notes that in some cases claiming MDR is not beneficial. The buyer must decide whether to claim it.
If ADS is in point, the dwelling part of the calculation changes. The guidance distinguishes between:
- cases where no ADS is payable, using a formula based on tax due on an average dwelling, multiplied by the number of dwellings, plus any tax due on remaining property; and
- cases where ADS is payable, using the sum of the tax due on each dwelling, plus any tax due on remaining property.
The guidance also notes that where there is a replacement of a previous main residence, the ADS position may differ between dwellings, so the amount for each dwelling may not be identical.
How to analyse it
A sensible way to analyse MDR is to work through these questions in order.
1. Are there multiple dwellings?
The relief only starts to matter if the transaction, or linked transactions, involve more than one dwelling. If there is only one dwelling, this guidance does not apply.
2. Is there any other property in the deal?
If the purchase includes non-dwelling property as well as dwellings, you may need to calculate a separate amount for the remaining property, called RT in the guidance.
3. Are the transactions linked?
If there are linked transactions, you look at the total consideration attributable to dwellings across all linked transactions when calculating the dwelling element.
4. Is ADS applicable?
This affects which MDR formula is used. The guidance distinguishes between transactions with ADS and those without it. It also notes that 6 or more residential properties bought in a single transaction may still be relevant for MDR even though they are relieved from ADS and treated as non-residential for ADS purposes.
5. Is MDR blocked by another relief?
You cannot claim MDR if one of the listed reliefs is available, including crofting community right to buy relief, group relief, reconstruction relief, acquisition relief or charities relief. The guidance also says MDR is not available if one of those reliefs was available and has been withdrawn.
6. How is the dwelling tax amount worked out?
For the dwelling element, the guidance says to:
- find the total consideration attributable to dwellings;
- divide that by the total number of dwellings;
- calculate the LBTT that would be due on that average amount as if it were a residential transaction and not a linked transaction.
That gives the tax due in relation to a dwelling, called DT.
7. How is the remaining property amount worked out?
If there is remaining property, the guidance says to:
- calculate the tax that would be due if MDR were not available;
- divide the consideration attributable to remaining property by the total chargeable consideration;
- multiply the tax from the first step by that fraction.
That gives the tax due in relation to remaining property, called RT.
The guidance says that attribution must be made on a just and reasonable basis. That matters where the price is paid for a mixed bundle of assets and there is no obvious contractual split.
8. Has the minimum prescribed amount been checked?
The guidance gives the minimum prescribed amount as 25% of the tax that would be due without MDR, after excluding the amount attributable to remaining property. In formula terms:
MPA = (TT – RT) x 25%
where TT is the tax due if MDR were not available.
The tax payable is the higher of:
- the MDR calculation, plus RT; or
- the minimum prescribed amount, plus RT.
Example
This is only an illustration of the method, not a substitute for the statutory calculation.
A buyer acquires two dwellings in one transaction, with no other property. The total price attributable to the dwellings is divided by two to find the average price per dwelling. LBTT residential rates are then applied to that average amount as if it were a standalone residential purchase. That produces DT. DT is then multiplied by two.
The buyer must then compare that figure with the minimum prescribed amount. The minimum amount is based on the tax that would have been due without MDR, reduced by any amount attributable to remaining property. Because there is no remaining property in this example, that comparison is straightforward. The buyer pays whichever figure is higher.
If the transaction had also included non-residential land, part of the total tax would need to be allocated to that remaining property on a just and reasonable basis and added back into the final figure.
Why this can be difficult in practice
The main difficulty is usually not the idea of the relief, but the detail of the calculation.
First, identifying what counts as a dwelling can be fact-sensitive, although this general guidance does not set out the full technical rules on that point.
Second, where there is mixed property, the price must be split between dwellings and remaining property on a just and reasonable basis. That can be contentious if the contract does not allocate values clearly.
Third, linked transactions can change the result because the dwelling consideration is aggregated across the linked purchases for the purpose of the calculation.
Fourth, ADS can complicate the method, especially where not all dwellings are treated the same way, for example because of a replacement of a previous main residence.
Finally, MDR is not always beneficial. Because there is a minimum prescribed amount, and because the interaction with ADS and mixed property can alter the outcome, a claim should be checked rather than assumed to help.
Key takeaways
- MDR can reduce LBTT where more than one dwelling is acquired in one transaction or linked transactions, but it is only a partial relief.
- You must compare the MDR result with the minimum prescribed amount and pay the higher figure.
- The calculation becomes more complex if there is ADS, mixed property, linked transactions, or another relief that blocks MDR.
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Useful article? You may find it helpful to read the original guidance here: Guide on Claiming Multiple Dwellings Relief and Calculating Land and Buildings Transaction Tax
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