SDLT and Multiple Dwellings Relief (MDR)

Multiple Dwellings Relief, when available, can provide you with reduced rates of stamp duty land tax chargeable. When it was introduced in 2011, there was much confusion as to what constitutes a “dwelling”, meaning there have been many cases of MDR going unclaimed.

This page clarifies what Multiple Dwellings Relief is, answers common questions surrounding the topic, and can help you decide if you might be eligible to claim it and how Patrick Cannon can help.

What Is Multiple Dwellings Relief?

Multiple-dwellings relief allows the stamp duty land tax on the purchase of two or more dwellings to be computed by reference to the average value of the properties purchased, multiplied by the number of dwellings instead of by reference to the total purchase price of all the dwellings.

This can lead to a significant reduction in the amount of SDLT charged on the purchase of two or more dwellings, either together, or in linked transactions.

When does Multiple Dwellings Relief apply?

MDR applies to properties purchased when you buy two or more single dwellings either in a single transaction or in a scheme, arrangement, or series of linked transactions.

This can lead to a significant reduction in the amount of SDLT charged on the purchase of two or more dwellings, either together, or in linked transactions. The stamp duty relief can apply when you buy the main house which includes a granny annex that has the attributes of a self-contained dwelling.

The relief must be claimed using code 33 in the SDLT return. The rate of SDLT will normally be the appropriate rates under the alternative Table A applicable to a higher rate transaction for the purchase of additional residential properties which you can read about here.

Note however that where the additional dwelling is a granny annex you may be able to claim stamp duty relief for multiple dwellings without having to pay the additional 3% or higher rates of stamp duty.

If you think that you paid too much stamp duty by failing to claim MDR you can claim back stamp duty within 12 months of the filing date of your original SDLT return by making an SDLT reclaim to HMRC.

 

What is the definition of a “dwelling” under SDLT?

The meaning of “dwelling” is very important for SDLT purposes.  Two areas where it can lead to significant savings in SDLT are in relation to the 3% higher rates of SDLT and in relation to multiple dwellings relief.

The 3% SDLT Surcharge

The 3% higher rate charge applies to the purchase of a dwelling and what counts as a “dwelling” is set out in paragraph 18, Schedule 4ZA, Finance Act 2003 and paragraph 18(2) provides that:

(2)   A building or part of a building counts as a dwelling if –

  • it is used or suitable for use as a single dwelling, or
  • it is in the process of being constructed or adapted for such use.”

This definition is not particularly helpful in explaining the meaning of “dwelling”, although it is clear that for SDLT that the building concerned must be either used or suitable for use as a single dwelling or is in the process of construction or adaptation for such use at the effective date.

HMRC further clarified this by saying:

“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.”

Further issues that are currently a matter of debate with HMRC and ultimately possible tax appeals, including whether it is necessary to have a lockable front door, whether separation by stairs is sufficient and whether separate utility metering and council tax registration is a prerequisite to be a single dwelling. The way that “dwelling” has been defined for VAT[1] and council tax purposes is instructive here, although not determinative for SDLT.

 

Recent Case on the Meaning of Dwelling

A recent tax Tribunal case Bewley Ltd v HMRC [2019] has emphasised that a bungalow that was not used as a dwelling at the date of purchase, whose radiators and pipework had been removed and with the presence of asbestos preventing any repairs and alterations, was not suitable for use as a dwelling.

Accordingly, the Tribunal held that not only did the 3% higher rates not apply to the purchase price of £200,000 but that SDLT was chargeable under Table B for non-residential property at £1,000 and not the £1,500 paid by the appellant taxpayer under Table A.

While much excitement has been aroused by this case, it is important to understand the limitations of the decision.  For example, a dilapidated house that is still being used as a single dwelling at the time of sale or one that instead of being demolished as in Bewley, is in the process of construction or adaption, e.g. repair as a single dwelling, will still be a dwelling for the purposes of the 3% higher rates.

HMRC have said at SDLTM09520 that residential properties in the process of construction will be treated as dwellings at the point at which the walls begin to be built upon the foundations even if those walls are not yet above ground level. HMRC’s views on a dilapidated property can be found here.

There is also the chestnut of the purchaser who pays the vendor to demolish the old dwelling before completion, and so at completion, acquires the land in order to build another dwelling and how that is to be treated for SDLT. Could the GAAR apply?

For MDR purposes the definition of “dwelling” is contained in paragraph 7, Schedule 6B, Finance Act 2003. This is the same as the definition for the 3% higher rates charge above and it provides that:

(2) A building or part of a building counts 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.

SDLT Multiple Dwellings Relief and Mixed-Use Properties

Many clients ask about whether Multiple Dwellings Relief is available for their house purchase where an annex or outbuildings are involved. This request can arise before a proposed purchase is completed so that the conveyancer can complete the SDLT return with a claim to the reduced SDLT available if I am able to advise that the relief is due. Alternatively, the request may be made after the completion of the purchase to see if a stamp duty refund can be claimed because MDR should have been claimed but wasn’t.

Many clients also ask about whether their property purchase qualifies for the much lower rates of SDLT for mixed residential and non-residential property. When correctly claimed these lower SDLT rates offer huge savings in tax, but HMRC are increasingly resisting such claims so it is very important to get expert and experienced advice. I have reviewed and critiqued HMRC’s latest published guidance on the subject here.

Building and Construction Operations and Claiming MDR

From the definition of “dwelling” set out above you can see that the second limb relates to a building that is in the process of being constructed or adapted for use as a single dwelling. Therefore, dwellings that are in the process of construction can also count for claiming MDR.

In HMRC’s view published in October 2019, there must be more than “a hole in the ground” and that building works “on top of the foundations” must have begun by the date of substantial performance or completion of the purchase contract.

HMRC has also said at SDLTM09520 that residential properties in the process of construction will be treated as dwellings at the point at which the walls begin to be built upon the foundations even if those walls are not yet above ground level.

Even where construction has not yet begun the dwelling to be built can be counted for MDR when the purchase contract for a dwelling that is to be built is substantially performed. This covers for instance “off-plan” purchasers who buy two or more future dwellings off-plan and who substantially perform their contract either before completion or before selling their contract on to someone else.

This is a complicated area and you would be wise to take specialist advice if you are wanting to claim stamp duty relief for multiple dwellings that have not yet been built or the construction process even started.

How Patrick Can Help

Stamp Duty Land Tax is a very complicated area. If you are considering whether the 3% higher rates of SDLT apply or whether you can claim multiple-dwellings relief, contact Patrick Cannon below to ensure you don’t miss out on any possible relief.

Footnotes:

[1] (2) A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied—

(a) the dwelling consists of self-contained living accommodation;

(b) there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;

(c) the separate use or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and

(d) statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.

[ultimate-faqs include_category=’multiple-dwellings-relief’]

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