Multiple Dwelling Relief: Save on Stamp Duty Land Tax in the UK

What is Multiple Dwelling Relief?

MDR reduces the SDLT payable when a single buyer purchases multiple residential dwellings in one transaction (linked transaction). To qualify, each dwelling must be self-contained with its own facilities like a kitchen and bathroom.

The total purchase price is divided by the number of dwellings to get the average price per dwelling. SDLT is calculated on this average price, multiplied by the number of dwellings.

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(Disclaimer: The information provided is accurate as per 2023 and is for general purposes only. We do not guarantee the accuracy or suitability of the website or any information contained in this post. It’s important to note that the author is not a financial, tax, or legal advisor, and it’s recommended to consult a professional before making decisions related to stamp duty. The author will not be responsible for any losses or damages resulting from the use of this information.)

What is a linked transaction?

A linked transaction refers to a scenario in tax law where two or more property transactions are treated as being related to each other in some way, typically due to the parties involved, the timing of the transactions, or other factors that link them together.

These transactions are considered together for the purpose of calculating taxes, such as Stamp Duty Land Tax (SDLT) in the UK, rather than treating them as separate and unrelated transactions.

Here are some characteristics of linked transactions:

Same Parties Involved: Linked transactions often involve the same parties engaging in multiple transactions either simultaneously or within a short period.
Dependent Terms: The terms of one transaction may be dependent on the terms of the other transaction(s), indicating a linkage between them.
Financial Connection: There might be a financial connection between the transactions, such as a shared source of funding, or one transaction being contingent on the financial success of the other.
Common Objectives: The transactions may be carried out to achieve a common objective, indicating a level of coordination between them.
Timing: The transactions may occur within a short time frame of each other, suggesting a linkage.

When transactions are identified as being linked, they are usually grouped together for the purpose of calculating tax liabilities.

This can affect the amount of tax payable, as the tax rate may be calculated on the aggregate consideration of the linked transactions, rather than on each transaction individually. This is particularly relevant in the context of SDLT, where the rate of tax can increase with the value of the transaction.

It’s always advisable to seek professional advice from a tax advisor or legal professional when dealing with linked transactions, as the rules and implications can be complex and may vary based on jurisdiction and specific circumstances.

What are Attributes to the dwellings?

The phrase “attributable to the dwellings” often refers to certain values, costs, or characteristics that are associated with or assigned to residential properties in various contexts, such as taxation, valuation, or legal matters.

Here are a few examples of how this phrase might be used when dwellings purchased and multiple property transactions:

Valuation:
- When valuing a property or a group of properties (e.g., in a multiple dwelling transaction), the phrase “attributable to the dwellings” might refer to the portion of the total value that is assigned to each individual dwelling based on its characteristics, condition, location, or other factors.
Taxation:
- In the context of tax law, “attributable to the dwellings” might refer to the portion of the total transaction price or value that is assigned to each dwelling for the purpose of calculating taxes such as Stamp Duty Land Tax (SDLT) in the UK.
Cost Allocation:
- In a multiple dwelling transaction or development project, costs such as construction, renovation, or maintenance costs might be allocated to each dwelling based on some criteria. The phrase “attributable to the dwellings” might be used to refer to this allocation.
Legal and Regulatory Compliance:
- Certain legal or regulatory requirements might apply to individual dwellings within a multi-dwelling property. In such cases, the phrase “attributable to the dwellings” might be used to refer to the rights, obligations, or compliance requirements that are associated with each dwelling.
Utilities and Services:
- The costs of utilities and services like water, electricity, and waste disposal may be attributed to individual dwellings within a multi-dwelling property based on usage or some other criteria.

How Does it Save Money?

Calculating SDLT on the average rather than total price pushes more of the purchase into lower SDLT bands, reducing the overall tax burden.

For example, buying two £300,000 houses would normally incur over £20,000 in SDLT each. With MDR, the average price is £300,000 x 2 / 2 = £300,000, saving over £17,500

Claiming Multiple Dwelling ReliefMDR must be claimed on the SDLT return when purchasing the properties.

Conveyancing solicitors usually handle this, but it can also be claimed retrospectively within 12 months.

Strict criteria apply, so professional advice is recommended to ensure eligibility and maximise savings. MDR can provide substantial SDLT savings on multiple property purchases.

Understanding the relief and seeking expert guidance is key to successfully claiming it.

Historical background of Multiple Dwelling Relief

Multiple Dwelling Relief (MDR) is a reduction on the tax that must be paid on the purchase of a property in England and Northern Ireland, known as Stamp Duty Land Tax (SDLT).

The relief reduces the stamp duty when more than one “dwelling” forms part of a single purchase transaction.

The government introduced MDR in 2011 to encourage investment in residential property by reducing the cost of stamp duty when buying multiple dwellings in one transaction.

The purpose of MDR is to apply SDLT rates to the average price per dwelling rather than the total purchase price. This effectively allows each dwelling to benefit from lower SDLT rates as if they were purchased separately.

To qualify, a transaction must include at least two dwellings, which can be houses, flats, annexes, or mixed commercial and residential use.

Originally intended for landlords buying multiple rental properties, MDR also applies to regular home buyers purchasing a main house with a granny annex or converting a larger home into flats.

MDR aims to stimulate investment in the residential property market by lowering the stamp duty costs of acquiring multiple dwellings.

Multiple Dwellings Relief (MDR) Calculation

Here’s how the MDR is generally calculated:

Average Consideration Calculation:
- First, the total consideration paid for all the dwellings is divided by the number of dwellings to determine the average consideration per dwelling.

$Average Consideration = Number of Dwellings Total Consideration$

SDLT on Average Consideration:
- Next, the SDLT is calculated on the average consideration per dwelling using the SDLT rates in effect at the time of the transaction.

$SDLT on Average Consideration = SDLT Rate \times Average Consideration$

Total SDLT:
- Finally, the SDLT on the average consideration is multiplied by the number of dwellings to determine the total SDLT payable.

$Total SDLT = SDLT on Average Consideration \times Number of Dwellings$

A key point to note is that the minimum rate of tax under MDR is 1% of the total consideration paid for the dwellings.

Example: Suppose you purchase three dwellings for a total consideration of £600,000. The average consideration per dwelling is £200,000 (£600,000 / 3). Assume the SDLT rate is 5%. The SDLT on the average consideration is £10,000 (5% of £200,000). The total SDLT payable is £30,000 (£10,000 x 3).

This calculation can become complex, especially with varying SDLT rates and thresholds. It’s advisable to consult with a tax professional or use an SDLT calculator tool to accurately determine the SDLT and the relief under MDR for your specific circumstances.

Eligibility for Multiple Dwelling Relief

Multiple Dwelling Relief (MDR) allows reduced Stamp Duty Land Tax (SDLT) rates when purchasing multiple dwellings in a single transaction. To qualify for MDR, the transaction must include freehold or leasehold interests in at least two dwellings, or be linked to another transaction involving multiple dwellings between the same buyer and seller.

The dwellings can be houses, flats, or other places of residence.
When claiming MDR, SDLT rates are applied to the average price of the dwellings rather than the total transaction value. This can lead to significant SDLT savings compared to purchasing each dwelling separately.

However, MDR does not apply in all cases:

It does not apply to the transfer of a freehold reversion or headlease where one of the dwellings has a lease of 21 years or more. Normal SDLT rates without relief apply in this case
If the number of dwellings is reduced within 3 years of the transaction, an additional SDLT return may need to be filed and the tax recalculated
MDR cannot be claimed alongside some other SDLT reliefs like charities relief or group relief, even if those reliefs are not actually claimed
An annex or outbuilding is only considered a separate dwelling for MDR purposes if it is fully self-contained with its own facilities and access

Careful planning is required to ensure transactions are structured in a way that maximizes eligibility for MDR.

Conveyancing solicitors can advise on whether a property purchase qualifies and assist with claiming the relief.

Taking advantage of available SDLT reliefs like MDR can lead to substantial tax savings for landlords, property investors and others purchasing multiple dwellings.

Calculating Multiple Dwellings Relief for Stamp Duty Land Tax

Multiple Dwellings Relief (MDR) is a reduction in Stamp Duty Land Tax (SDLT) that applies when purchasing multiple residential properties in England and Northern Ireland.

The purpose of MDR is to reduce the SDLT rates closer to what would be paid if the properties were purchased separately. Here is an explanation of how MDR is calculated:

Step 1: Determine the Total Consideration

Add up the purchase price (consideration) of all the dwellings being acquired. This includes houses, flats, apartments or other self-contained residential units. Any non-residential property purchased as part of the transaction does not qualify for MDR.

Step 2: Divide by the Number of Dwellings

Divide the total consideration by the number of dwellings being purchased. This gives you the average price per dwelling.For example, if you purchase two houses for £200,000 each and three flats for £150,000 each, the total consideration is £1,000,000. Dividing by 5 dwellings gives an average price per dwelling of £200,000.

Step 3: Calculate SDLT on Average Price

The SDLT rates are then applied to the average price per dwelling calculated in step 2. This ensures each dwelling benefits from the nil rate band and lower SDLT rates.In our example, the SDLT on £200,000 would be £1,500 (2% of £125,000 plus 5% of £75,000).

Step 4: Multiply by Number of Dwellings

Finally, multiply the SDLT calculated in step 3 by the total number of dwellings purchased.

In our example, £1,500 SDLT per dwelling multiplied by 5 dwellings equals £7,500 total SDLT due.

This represents a saving of £8,750 compared to if MDR was not claimed and normal SDLT rates applied to the total consideration of £1,000,000.

Claiming MDR can result in significant SDLT savings when purchasing multiple dwellings. It is important to calculate MDR correctly and claim it on your SDLT return. Consulting a tax advisor can help maximize your MDR claim.

Step-by-Step Guide to Claiming Multiple Dwelling Relief

Multiple Dwelling Relief (MDR) allows you to pay less Stamp Duty Land Tax (SDLT) when you buy multiple residential properties in a single transaction. Here is how to claim MDR:

Determine eligibility. To qualify, the properties must contain at least 2 dwellings that are self-contained with their own facilities like a kitchen and bathroom. The dwellings can be apartments, houses, flats, annexes etc. Commercial property can be included.
Calculate SDLT. Add up the total purchase price of all dwellings. Divide this by the number of dwellings to get the average price per dwelling. Use this average price to calculate the SDLT based on normal SDLT rates.
Apply MDR. Multiply the SDLT calculated in step 2 by the total number of dwellings. This is the SDLT payable after MDR. There is a minimum SDLT rate of 1% of total purchase price.
Submit SDLT return. When submitting the SDLT return, enter relief code ’33’ to claim MDR. The calculated SDLT in step 3 must be entered as the amount due.
Retrospective claims. If you forgot to claim MDR initially, you can submit an amended return within 12 months of the original filing date. Follow steps 1-4 and enter relief code ’33’.

MDR allows you to pay SDLT based on the average property price, rather than the total price. This results in substantial SDLT savings when buying multiple dwellings in a single transaction. Consult a tax advisor if unsure of eligibility. Claim MDR correctly using relief code ’33’ to avoid penalties.

Things to Consider

There are a few key implications to consider if the number of dwellings is reduced within three years of the transaction when claiming multiple dwellings relief (MDR).

There will likely be a clawback of the MDR claimed, meaning the stamp duty land tax (SDLT) calculation will need to be redone and any additional tax paid

This is because the SDLT position must be revisited if the number of dwellings changes within three years after purchase when MDR has been claimed.

Penalties and interest may apply if the recalculation results in additional tax being due.

So it is important to notify HMRC promptly if the number of dwellings changes.

The higher rates of SDLT may apply if the remaining dwellings are worth over the threshold after the change.

This could significantly increase the SDLT liability.Given these potential implications, it is advisable to consult with a tax professional or property tax accountant when considering changes to the number of dwellings within three years of an MDR claim. They can help analyze the impact on SDLT and determine the best course of action.

Doing thorough due diligence and planning ahead for possible changes can help avoid unexpected tax bills down the line.

Multiple dwelling zoning regulations

Multiple dwelling zoning regulations in the UK encompass rules and guidelines governing the utilization of properties for housing multiple households or dwellings within a single property or area. Here’s an overview based on various aspects and regulations:

Houses in Multiple Occupation (HMOs):

HMOs provide accommodation for individuals from more than one household, often offering a more affordable housing solution.

They require mandatory licensing to ensure they meet health, safety, and welfare standards for occupants.

The licensing was initially for properties with 3 or more storeys housing 5 or more people from 2 or more separate households.

However, this scope has been extended to include properties with fewer storeys as the demand for HMOs increased.

The rules also set minimum room sizes for sleeping accommodations and requirements for refuse disposal in licensed properties.

Planning Regulations for Dwellinghouses and Houses in Multiple Occupation:

The UK has established planning regulations to manage the conversion of dwellinghouses into HMOs or vice versa.

These regulations aim to ensure that changes in property use adhere to zoning laws and building standards to maintain community welfare and safety.

Amalgamation of Dwellings:

When two or more dwellings are amalgamated into one, it may constitute a material change of use under section 55 of the Town and Country Planning Act 1990, which may require planning permission.

Building Multiple Homes on One Property:

Constructing multiple dwellings on a single lot requires permission from the local municipality.

This process involves ensuring that the construction adheres to zoning regulations, which may include restrictions on the number of dwellings, their size, and their placement on the lot.

These regulations and guidelines are part of the broader framework governing housing and urban development in the UK, aiming to ensure safe, decent, and affordable housing while promoting community welfare.

It’s advisable to consult with local planning authorities or legal professionals to understand the specific zoning regulations and requirements pertaining to multiple dwelling developments in your area.

Multiple dwelling relief checklist

This checklist and considerations can guide you in understanding the requirements for Multiple Dwelling Relief, especially when dealing with properties with annexes or granny flats.

For a deeper understanding, it’s advisable to consult with tax professionals or refer to official government guidelines on MDR.

Location of Annex/Granny Flat:
- The annex or granny flat must be either located on the same grounds as the primary residence or attached to it.
Value Representation:
- The main dwelling must represent at least two-thirds of the total purchase price of the two dwellings.
Separate Dwelling:
- The annexe or granny flat should also be a separate single dwelling in its own right, providing an independent living space for its occupants.
Private Domestic Existence:
- It should offer the means to lead a private domestic existence, maintaining the privacy and autonomy of its residents¹.

Furthermore, when determining the eligibility of a property for MDR, consider the following:

Suitability for Use as a Dwelling:
- A property must be suitable for use as a single dwelling, meaning it should be independent enough to function as a dwelling on its own. Evidence must demonstrate that each dwelling is sufficiently independent to be considered a separate dwelling, rather than a part of a larger dwelling.
Sleeping Area:
- A dwelling should have a designated area for sleeping, typically with appropriate lighting, power points, and a window. This space should be separate from the living area.
Living Area:
- A dwelling should provide a suitable living area, offering space for day-to-day activities such as seating, tables, storage, and visitor accommodation. It should have adequate lighting, power points, heating, and a window.
Kitchen:
- A dwelling should have an area where meals can be prepared and eaten. Although certain appliances like cookers or fridges may not be present at the time of the transaction, the infrastructure, such as plumbing and power sources, should be in place.

Key takeaway

Multiple Dwelling Relief (MDR) is a tax relief that can provide substantial savings on Stamp Duty Land Tax when purchasing multiple residential properties in a single transaction. The key points to remember are:

MDR allows SDLT to be calculated based on the average price per dwelling rather than the total purchase price. This pushes more of the transaction into lower SDLT bands.
To qualify, a transaction must include at least two dwellings like houses, flats or apartments. Commercial property can also be included.
MDR does not apply to transfers of headleases over 21 years or in certain other cases, so professional advice is needed.
Claiming MDR is straightforward – enter relief code ’33’ on the SDLT return and pay the SDLT based on the average price per dwelling.
Changes to the number of dwellings within 3 years can trigger clawback of the relief plus penalties and interest.

With the potential for thousands of pounds in SDLT savings, MDR is an important relief for property investors, landlords and home buyers to understand. Seeking guidance from a tax advisor or property tax accountant is highly recommended to ensure you qualify for MDR and maximize the savings.

For complete details on Multiple Dwelling Relief, visit the GOV.UK website. With proper planning, MDR can reduce the costs of expanding your property portfolio.