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  • Stamp Duty Land Tax (SDLT) & Multiple Dwellings Relief (MDR) – The Facts

    27 September 2019

    Robert Wilson

    Hello? Is it “MDR” you’re looking for?

    Multiple Dwelling Relief (“MDR”) was introduced in July 2011.

    MDR is intended to provide some relief from Stamp duty Land Tax (“SDLT) where multiple dwellings are acquired in a single transaction.

    Despite being a valuable tax relief it is often overlooked, potentially leaving the taxpayer disadvantaged when acquiring more than one property. Evidence suggests that MDR was claimed on just a third of eligible transactions in 2017.

    Perhaps spurred by the new 3% surcharge on SDLT, professional negligence actions against solicitors who fail properly to advise their clients of the potential to claim MDR meaning it is more important than ever to be aware of the relief.

    What is MDR?

    MDR will apply to a transaction, if the main subject-matter of that transaction is an interest in:

    • At least two dwellings (a multiple dwelling transaction); or
    • A single dwelling if:
    • it is one of a number of linked transactions; and
    • the main subject-matter of at least one of the other transactions is an interest in at least one dwelling (single dwelling transaction).

    Sounds easy enough, but tax is rarely straightforward. Let us expand on this.

    What is a dwelling?

    For the purposes of MDR, a building will count as a dwelling if:

    (a)     it is used or suitable for use as a single dwelling, or

    (b)     it is in the process of being constructed or adapted for such use.

    HMRC has recently provided greater clarification as to what constitutes a dwelling:

    “It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents can live independently of the residents of the rest of the building including independent access and domestic facilities.”

    This is an improvement, particularly given that the original guidance appeared to suggest that MDR would only be available to those purchasing properties divided into self-contained units to be let under assured shorthold tenancy agreements or flats where long leaseholds had not yet been granted.

    The key here therefore is that what constitutes a dwelling is a question of fact. Individual circumstances are different of course but what is really helpful is that HMRC consider that a self-contained part of a building which is capable of being lived in independently from the main building could be classed as a dwelling for MDR purposes.

    Suitable for use as a dwelling?

    What does it mean in terms of ‘suitable’ for use as a dwelling? The legislation does not go into detail as to how to interpret ‘suitable for use’. However, HMRC’s manual provides as follows:

    ‘Use at the effective date of the transaction overrides any past or intended future uses for this purpose. If a building is not in use at the effective date but its last use was as a dwelling, it will be taken to be “suitable for use as a dwelling” and treated as residential property, unless evidence is produced to the contrary.

    Undeveloped land is essentially non-residential but may be residential property if, at the effective date, a residential building is being built on it’.

    ‘Where, at the effective date, an existing building is being adapted or marketed for, or restored to, domestic use, it is treated as residential property’.

    Consequently, properties that are suitable for use as a dwelling, but are used for commercial purposes should not, applying this guidance, be taken to be dwellings for the purposes of the tax. Arguably, the position would be different where the property, which is suitable for use as a dwelling, is vacant but was last used for commercial purposes, if there is consent for change of use. In that situation, it is possible, the historical use of the property is overridden by the present ability to use the property as a dwelling.

    HMRC may though, depending on the facts, take a contrary view where, for example, a property’s last use was as an office but before the property is sold planning permission is granted for use as a dwelling, provided that, at the effective date of the transaction, the property is otherwise suitable for use as a dwelling or is being adapted for such use.

    In the process of being constructed or adapted for such use

    The description ‘a building that is used or suitable for use as a dwelling, or in the process of being constructed or adapted for such use’ in the legislation is a physical test and requires construction or conversion works to be taking place.

    HMRC’s Tax Bulletin 2/2012 states that properties that are in the process of being constructed will be treated as dwellings at the point when walls begin to be constructed upon the foundations, although those walls do not have to be above ground level.

    Where a building includes a number of dwellings (for example, a block of flats), HMRC appear to accept that all the dwellings in the building are treated as being in the process of being constructed when this test is met, not when construction of the individual dwelling starts. This principle applies even if the ground floor is intended for non-residential use (for example, where the building consists of retail shops with flats above), although we understand that there is no commercial element to this development.

    What is a ‘linked’ transaction

    Now we have a better idea of what a dwelling is, remember above that the transfer of a single dwelling may also fall into the net of MDR if:

    • it is one of a number of linked transactions; and
    • the main subject-matter of at least one of the other transactions is an interest in at least one dwelling(single dwelling transaction).

    When two or more property transactions involve the same buyer and seller, they count as ‘linked’ for SDLT. In such cases, SDLT is worked out on the cumulative purchase price of the properties i.e. SDLT is not worked out based on each individual unit.

    HMRC considers 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

    Again, let’s break this down

    Connected Persons

    A connected person could be a relative, for example a brother, sister, parent, grandparent,

    husband, wife or civil partner – or one of their relatives.

    If the buyer or seller is a business, a connected person would be a business partner and their relatives. It also includes companies and groups of companies who are connected to the business.

    Single arrangement or scheme

    Some transactions are linked because they’re part of the same single arrangement or scheme. It’s the same whether they are documented  separately or not. If each transaction has a separate contract, and if the sales are part of the same deal, they still count as linked for SDLT.

    If a residential property is sold in such a way that one person buys the house but their relative buys the garden, the 2 transactions are linked. They’re connected people and they’re buying things from the same seller as part of a single deal.

    Part of a series of transactions

    When a sale is followed by one or more related sales, if there’s something to link all the transactions together, they count as linked transactions for SDLT. HMRC does not place a limit to the length of time between the transactions.

    Consider a brief example. A property investor purchases a new house from a builder. Later, they buy a commercial property and finally an additional residential property off the same builder. HMRC will view these three transactions as linked as part of a series. Given that within these series of transactions, at least one other constituent purchase relates to a dwelling, MDR would be available.

    How does MDR work?

    As we have now analysed in some detail the pattern of facts that are required for MDR to be available, let us now explain how it works.

    Importantly, the relief must be claimed when filing the SDLT return with HMRC. When this relief is claimed, in order to work out the rate of tax HMRC charges:

    • divide the total amount paid for the properties by the number of dwellings
    • work out the tax due on this figure
    • multiply this amount of tax by the number of dwellings.

    The minimum rate of tax under the relief is 1% of the amount paid for the dwellings, so care is required if considering ‘bulk purchases’ which include one or more properties individually worth £125,000 or less.

    Additionally investors may decide to buy more than one property in a single transaction if value of the one property is comparatively low to the other one to average it out and pay the lower rate of tax on full consideration.


    Peter is a property investor and is purchasing three flats from a builder at a price of £300,000 each and a house from the same builder of £600,000, totalling £1,500,000.

    The transactions are linked for and assuming that there is no claim for MDR, the SDLT payable by Peter would be as follows: –

    Purchase price bands (£)                              Percentage rate (%)                       SDLT due (£)

    Up to 125,000                                                    3                                                              3,750

    Above 125,000 and up to 250,000              5                                                              6,250

    Above 250,000 and up to 925,000              8                                                              54,000

    Above 925,000 and up to 1,500,000          13                                                           74,750

    Above 1,500,000+                                            15                                                           0

    Total SDLT due                                                                                                                  138,750

    But, if Peter were to claim MDR, he would have to pay only: –

    £1,500,000 divided by 4 properties = £375,000

    Purchase price bands (£)                              Percentage rate (%)                       SDLT due (£)

    Up to 125,000                                                    3                                                              3,750

    Above 125,000 and up to 250,000              5                                                              6,250

    Above 250,000 and up to 375,000              8                                                              10,000

    Total SDLT due                                                                                                                  20,000


    We then multiply £20,000 by 4 leaving total SDLT payable of £80,000, a saving of £58,750!

    Non-residential rates

    In addition to MDR, property purchasers may alternatively wish to consider whether a claim for non-residential treatment of a transaction yields a lower SDLT liability.

    HMRC considers transactions which includes 6 or more dwellings to be commerical rather than residential and as such the non-residential rates of SDLT apply.

    The non-residential rates are generally lower than the residential rates, being 0% up to £150,000, 2% on the next £100,000 and 5% on the balance.

    Whether MDR or the non-residential rates will give the better result will depend on the circumstances.

    How can ETC Tax help?

    ETC Tax have assisted taxpayers and their advisors in claiming MDR in the following situations: –

    • Purchase of property with incorporated self-contained ‘granny annex’
    • Purchase of large stately property with three separate, self-contained 2-bedroom cottages in the grounds
    • Purchase of a commercial property with plans for being converted into residential flats
    • Incorporation of a property portfolio into a corporate vehicle
    • Purchase of a student apartment block
    • Purchase of an ‘off-plan’ plot of land on which construction works for residential properties had commenced

    It is important to refer back to a key point and message. For a successful claim for MDR to be approved, there must be two or more dwellings. What does constitute a dwelling is very much factual and therefore each case must be viewed in respect of its own merits. Careful application of the legislation and guidance is required in even the most seemingly clear cut of cases. Conversely, a seemingly obscure case may warrant a full review.

    Whilst it would be preferable for us to be involved prior to the purchase of a property in order to best assess the merits of a claim for MDR, it is worth pointing out that an amendment to an SDLT return can be made within 12 months of the filing date of the original SDLT return. Taxpayers and their practitioners might want to consider whether they have recently acted in relation to any transactions that might be eligible for MDR and engage with us to advise whether it would be worth filing an amended SDLT return to HMRC within the 12 month period.

    For more info on MDR & SDLT please contact a member of our helpful tax advice team.

    You can also read more about property tax below…