The chancellor has announced in the Spring Budget that Multiple Dwellings Relief (MDR) will be abolished for transactions with an effective date on or after 1 June 2024.
What is MDR?
MDR is a SDLT relief intended to encourage investment in residential property. It can be claimed where two or more properties are purchased together or in linked transactions. The effect of the relief is that the SDLT liability is calculated against the average price of a dwelling instead of the aggregated price of the dwellings. This can offer a substantial saving as the rates of SDLT increase with the purchase price. This is shown in the example below.
Example
An investor buys two flats from a developer in a single transaction for £1,500,000. The SDLT payable in the absence of a relief claim is £136,250. If MDR is claimed, the SDLT liability is calculated against the average price of £750,000 and reduces to £95,000.
See workings below:
| Purchase price (£) | Rates of SDLT(%) | Payable against £1,500,000 | Payable against £750,000 (MDR claim) |
| The first 250,000 | 3 | 7,500 | 2 x 7,500 |
| The next 675,000 (to 925,000) |
8 | 54,000 | 2 x 40,000 |
| The next 575,000 (to 1,500,000) |
13 | 74,750 | 0 |
| The balance | 15 | 0 | 0 |
| Total | 136,250 | 95,000 |
For the purposes of this calculation, it is assumed that the investor is UK resident and is paying the higher rates of SDLT for additional dwellings.
Is MDR only available to commercial landlords?
No, MDR is also available to individuals buying properties for their own use and is often claimed by people buying homes with granny annexes, staff accommodation or buildings that could be let as holiday accommodation.
When can MDR be claimed against an annexe?
HMRC has provided some guidance as to when it would consider an annexe to be a separate dwelling. There have also been several MDR cases heard at Tax Tribunals that have established some principles that have helped our understanding of this issue. HMRC recognises that there are many different factors that could be relevant and takes the approach of forming a balanced judgement on the facts. However, it seems that the most important characteristics of a dwelling are: self-contained living accommodation to include proper kitchen and bathroom facilities, independent access and a separate entrance (i.e. a lockable front door), privacy & security from other dwellings and the independent control of utilities.
Why is the relief being withdrawn?
HMRC is known to believe that the relief is misused and it ran a consultation from November 2021 to February 2022 considering potential changes to restrict its availability. Some of the claims that it objects to are simply abusive – the consultation cites instances of MDR being claimed by a purchaser on the basis that an en-suite bedroom was a separate dwelling as it had a large built-in wardrobe with a power socket which could take a kettle and microwave. Other cases of perceived misuse arise innocently due to a lack of clarity as to when ancillary accommodation would qualify as a separate dwelling in its own right.
Can I still use the relief?
Yes, the purchase of eligible properties can still benefit from the relief it the transaction completes before 1 June 2024. Similarly, qualifying transactions that exchanged no later than 6 March 2024 can benefit from the relief regardless of when they complete, provided that there are no variations to the contract.
It is possible to amend your SDLT return to claim the relief for up to 12 months after the filing date. If you have bought a property within the last year that comprises more than one dwelling, you may still be able to claim the relief.
Are there any other reliefs for residential property?
Yes, investors who purchase 6 dwellings in a single transaction will continue to have the option of taxing the purchase at the non-residential rates of SDLT. This can offer savings as the highest rate of non-residential SDLT is 5%, compared to 17% under the residential rates.
The Government has also confirmed that it has no current plans to alter the treatment of mixed-use transactions. This means that purchase of dwellings with non-residential property will also continue to benefit from the non-residential rates. This can apply in certain circumstances where a business is run from part of a property or some of the land or buildings acquired with a dwelling are let to a third party for a non-residential purposes (e.g. where land is let to a farmer.)
If you think you might be eligible for MDR or have any other questions, please contact our SDLT team who will be happy to help.
This article was correct at time of publication.
