Multiple Dwelling Relief To Reduce Stamp Duty Land Tax

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

3rd March 2022

Stamp Duty Land Tax when buying a residential property

You pay Stamp Duty Land Tax to HMRC within 14 days of buying a residential property. There are many SDLT rates that you need to consider when buying a buy to let property as a property investor. You may also be a property developer and looking at ways of minimising stamp duty land tax on a flip.

Have you overpaid Stamp Duty Land Tax?

We can help you recover overpaid SDLT. Please tell us about your overpayment to see if we can get it back from HMRC

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Claim SDLT relief for Multiple Dwellings Relief (MDR)

Do you pay stamp duty on buy to let property? UK landlords will need to pay stamp duty on their buy to let property purchase, but many reliefs are available.

Multiple Dwellings Relief is an opportunity to reduce SDLT when purchasing a residential buy to let. To claim a discount, you need to purchase two or more properties from the same vendor. This is commonly known as a linked transaction. There is a linked transaction as multiple land transactions take place with the same buyer/seller.

HMRC defines a linked transaction  “When 2 or more property transactions involve the same buyer and seller, they count as ‘linked’ for SDLT. HMRC may count people connected to a buyer or seller as being the same buyer or seller”.

HM Revenue Customs counts transactions as linked if:

– there’s more than one transaction

– the transactions are between the same buyer and seller or between people connected with either of them

– the transactions are part of a single arrangement or scheme or part of a series of transactions

Recently the have been some changes to the SDLT for MDR and the 3% SDLT additional rate.

These changes have been put in place by the HMRC or the Her Majesty’s Revenue and Customs, which collects revenue on behalf of the UK government.

The new changes which were rewritten in April 2020 state that the SDLT 3% higher rules do not apply to mixed properties. They have been rewritten to reflect that the 3% higher SDLT will not affect you if you own a property that has both residential and non-residential elements.

You can also still use Multiple dwelling relief to decrease the tax burden of the property, which has a residential element.

Let us take a look at an example to see how Stamp Duty Land Tax and in particular the 3% SDLT additional rate may be significantly reduced.

£350,000 purchase value of a property. We do not know too much as the property apart from it has a few ASTs. The solicitor may therefore assume, incorrectly, that the property is residential in nature. The Stamp Duty Land Tax is calculated by the solicitor as follows

£7,500 SDLT based rate

£10,500 3% SDLT higher rate (3% of £350,000)

£18,000 total SDLT liability when purchasing a residential property with a value of £350,000 (ignoring the Rishi Sunaks winter holiday for SDLT given that this ended in April 2021)

When we look further into the property we understand that the property has 5 bedsits. The property is all on one title, nevertheless, the five bedsits qualify for Multiple Dwellings Relief (MDR). Each bedsit has an individual value of £70,000. The £70,000 property value is less than £125,000 so no SDLT banded rate will apply.

We can now revise the Stamp Duty calculator workings:

£3,500 SDLT based rate (please note that there is a 1% minimum charge on the property value)

£10,500 3% SDLT higher rate (3% of £350,000)

£14,000 Total SDLT liability – SDLT banded rate and 3% SDLT higher rate

This is a nice £4,000 SDLT saving but there is more to come by asking much better questions of the buyer and seller.

We ask more questions only to find out that the five bedsits are on top of a commercial unit. This means that we can divide the £350,000 purchase price by its floor space as follows:

£250,000 for the five bedsits

£100,000 for the commercial unit beneath the five bedsits

£350,000 total purchase value

The £100,000 commercial valuation is below the £150,000 non-residential banded rate of Stamp Duty Land Tax. This means that no SDLT will be charged on this element.

This now leaves £250,000 to be taken into consideration for the solicitor when calculating the Stamp Duty Land Tax. Each flat will have an individual rate of £50,000

£2,500 SDLT banded rate with a minimum 1% charge for MDR

£0 3% SDLT higher rate as there is a commercial element. No need to apply the 3% SDLT additional rate to this transaction

£0 SDLT or the commercial element of the £1000,000

£2,500 total SDLT liability

As you can see the buyer could have saved £15,000 stamp duty land tax if the solicitor in question asked better questions. In order for you to benefit from SDLT relief for multiple dwellings, you ought to work with an SDLT tax specialist.

Have you overpaid Stamp Duty Land Tax?

We can help you recover overpaid SDLT. Please tell us about your overpayment to see if we can get it back from HMRC

Complete the form here

Claiming a refund on where MDR could have been applied to save SDLT

Anybody making an acquisition of a mixed use multiple dwellings property should be able to reclaim overpaid SDLT for the last four years (and probably back to April 2016)

The criteria for claiming are either that:

– they claimed multiple dwellings relief but paid at the wrong rate or

– that they didn’t claim multiple dwellings relief because to have done so would have led to them paying more tax based on the old HMRC guidance

Clients who have acquired permitted development conversion or buildings with planning permission for conversion (including works of substantial demolition) who paid commercial rates are eligible for multiple dwellings relief on those site acquisitions

Clients who purchased Greenfield sites i.e. bare land should be able to claim multiple dwellings relief

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