HMRC charges Stamp Duty Land Tax (SDLT) on all property transactions in the United Kingdom where the value is more than certain thresholds. Some transactions qualify for reliefs that reduce the amount of tax you pay, or that you do not pay Stamp Duty Land Tax. MDR or Multiple Dwellings Relief is one such relief which you may be able to claim for reduction in the amount of tax payable to you if the subject of the transaction exceeds one dwelling.
Any reduction which could be claimed by the way of MDR are matters best dealt by an experienced and professional Lawyer who can not only assist with regulatory compliance but also protect your best interests efficiently by saving additional costs and time.
What are the thresholds of SDLT?
The threshold is where SDLT starts to apply. If you buy a property for less than the threshold, there’s no SDLT to pay.
The current SDLT thresholds are:
- £250,000 for residential properties
- £425,000 for first-time buyers buying a residential property worth £625,000 or less
- £150,000 for non-residential land and properties
Cases where the buyers are wrongly advised into applying for relief under Multiple Dwellings Relief where the transaction is ineligible are a common occurrence as well as those cases where such qualifying transactions are executed to completion without the buyer being aware of their eligibility. In the latter case, the Buyer may then seek to claim back their tax payment from the HMRC. These complex matters require the expertise of a specialist team. Lexlaw comprises of dedicated Barristers and Solicitors who specialise in tax advice and litigation at the highest level.
What qualifies as a dwelling for eligibility of MDR?
The definition of a ‘dwelling’ as given under The Finance Act 2003 Schedule 6B states that ‘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.
As this definition is not very specific in regards to the facilities which are necessary for a living space to constitute a ‘dwelling’ such as interlocking doors, kitchen, separate utility meters etc. All of the stated facilities may be relevant for the purposes of relief under MDR.
Land that is, or is to be, occupied or enjoyed with a dwelling for example a garden or grounds is included as is land that or is to subsist for the benefit of a dwelling (The Finance Act 2003, Schedule 6B, para 7).
This definition of ‘dwelling’ is based on, and for material purposes, the same as the definition of ‘residential property’ in the Finance Act 2003, s 116 except those acquisitions of land where construction or adoption of a single dwelling has not yet commenced at the time of substantial performance can also be included (FA 2003, Schedule 6B, para 7(5)).
HMRC published fresh guidance, on 1 October 2019, on the meaning of ‘dwelling’ as SDLTM00410 – SDLTM0430. Although in the author’s experience, HMRC tends to not always follow their guidance in enquiries and in tax tribunal appeal hearings dependent upon whether or not the guidance supports their desired outcome in any particular case.
A Tax Tribunal in the case of Bewley Ltd v HMRC [2019] emphasised that the bungalow was not a suitable dwelling. The bungalow was not being used as a dwelling at the date of purchase due to its state and the presence of asbestos prevented any repairs and alterations. 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 the non-residential property at £1,000 and not the £1,500 paid by the appellant taxpayer under Table A.
Does an Annexe or ‘Granny Flat’ qualify for Multiple Dwelling Relief?
In certain circumstances, an annexe or “granny flat” may qualify for MDR if it is a “subsidiary” of the main dwelling. This means that the annexe or granny flat must be on the same grounds as the main dwelling or attached to it and the main dwelling must be worth on a just and reasonable basis, at least two-thirds of the total purchase price of the two dwellings. The annexe or granny flat must also be a separate single dwelling in its own right and afford the means for the occupant to lead a private domestic existence.
When does Multiple Dwellings Relief apply?
Multiple Dwelling Relief or MDR can apply to property transactions where the subject of a single or in a series of linked transactions consists of two or more dwellings. In such cases, tax savings could be significant where the buyer intends to purchase several properties at the same time; one large property divided into multiple dwellings for example a house with a granny annexe. It can also save additional costs and taxes for landlords purchasing properties which are ‘off-plan’ at the time of the transaction.
What is a Linked Transaction for the purposes of SDLT?
A Linked Transaction is where a number of property transaction are carried out between the same buyer and seller or persons connected with them for that transaction. Buyers should be aware that the value of all properties in a series of linked transactions is added together before the rate of SDLT is calculated or applied, carrying a potentially higher tax rate than on each individual property. As MRD applies to linked transactions, it reduces the applicable tax charged by taking the average price of each dwelling and only applying rates applicable to the average price to legitimise the SDLT savings for the buyer.
What is 3% SDLT Surcharge?
In case you are a homeowner already, a 3% SDLT surcharge is charged on each residential property you purchase. There are however exceptions, for example, buying a home to replace your current residential abode (for example during a separation or divorce).
Additionally, if the added residential properties have a commercial aspect (e.g. flats above shops or residential properties with offices), they are exempt from the 3% SDLT surcharge.
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