SDLT: Multiple Dwellings Relief

What is Multiple Dwellings Relief (MDR)?

Put simply, MDR allows you to apply SDLT to the average value of the dwelling you have purchased, as opposed to paying the SDLT on the actual value of each dwelling.

For example, say you were to purchase 10 dwellings simultaneously for a total of £3 million; rather than being charged the new SDLT rates for the entire purchase – which would be £363,750 – you could pay less by claiming MDR with the following calculation:

Total sum of dwellings purchased / number of dwellings
£3,000,000 / 10 = £300,000

£125,000 @ 3%* = £3,750
£125,000 @ 5%* = £6,250
£50,000 @ 8%* = £4,000
SDLT = £14,000

* Including the new “surcharge” rates, that came into effect on 1st April 2016.

£14,000 x 10 = £140,000

The total amount payable would be £140,000 – a saving of £223,750.

It is also worth noting that the sum of the above calculation is subject to a minimum rate of 1%.

Is MDR automatically applied?

Multiple dwellings relief must be claimed when purchasing more than one property, otherwise standard SDLT rates will be applied.

In some cases, it may not be worth claiming MDR, which is fully explained in this recent document.

What is considered a ‘dwelling’?

According to HMRC, a dwelling is “a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use”.

Is there any other way?

Yes…by treating the transaction as a purchase of non-residential property. A simultaneous purchase of six or more residential dwellings (from the same vendor) can alternatively be treated as a non-residential property purchase for SDLT purposes. This could possibly result in a better outcome than claiming MDR. For example, if you were to purchase 6 dwellings for a total of £1.8 million you would pay £84,000 in SDLT, even if you were claiming MDR. The charge at non-residential rates would only be £79,500.

What about the sale of a Property Portfolio held in a Limited Company?

If the property portfolio being sold is owned by a Property Investment Company, then rather than selling the properties out of the company, you could sell the whole company with the properties “inside” it.

The sale of the company would be a capital disposal and the investor making the sale would therefore have Capital Gains Tax Liability in much the same way as would arise on winding the company up.

However, there is a huge advantage for the purchaser of the company (and the property within). This is the ability to make big SDLT savings, as they will be purchasing the shares of the company which attract only 0.5% stamp duty!

So, using our original example above of 10 dwellings valued at £3m, the stamp duty payable on these properties being sold within a Limited Company would be £15,000, a huge saving of £125,000 over the SDLT figure on individual residential dwellings with the MDR relief. In fact, the saving over purchasing the property in a company vs. individual residential dwellings without the MDR relief, would be an massive saving of £348,750!

Providence Financial Solutions