When purchasing property in the UK, it’s important to consider the amount of Stamp Duty Land Tax (SDLT) you’ll be required to pay. SDLT is a tax that is paid when you purchase a property or piece of land over a certain value. However, there are certain exemptions and reliefs available that can help you reduce the amount of SDLT payable. One such relief is the Multiple Dwellings Relief (MDR), which is available for those who are purchasing multiple properties at the same time.
Stamp duty rules for multiple purchases act to amalgamate the consideration for connected transactions, so if you are buying a block of 10 flats for £300,000 each you are taxed as if you have bought a single asset worth £3m meaning the highest rates of SDLT apply, so MDR is a relief that is designed to help mitigate the tax in these situations. MDR is calculated based on the average price of the dwellings purchased and is designed to prevent buyers from being penalised for buying multiple properties at once.
However, this relief can also apply where a person purchases a property which has several separate living spaces such as granny flats, annexes or separate bungalows in the grounds.
To be eligible for MDR, you must be purchasing two or more dwellings at the same time, which can be either residential or non-residential properties. The dwellings must also be purchased in a single transaction, and the purchase price must be over £40,000 for each property.
The amount of SDLT payable under MDR is calculated by dividing the total purchase price by the number of dwellings purchased. The SDLT is then calculated on the resulting average price using the rates applicable to the purchase price band (subject to a minimum of 1%).
For example, if you were purchasing a new home for £1.4m the SDLT on this would be £81,250. However, if it had a self contained annex (which met the definition of a dwelling) you can claim MDR treating it as a purchase of two properties of £700,000 each (despite the fact the annex may only be a small fraction of the overall value). This results in a tax charge of £22,500 per property and a total cost of £45,000 and a saving of £36,250.
It’s worth noting that MDR cannot be used in conjunction with other SDLT reliefs, such as the First-Time Buyers Relief. Additionally, it’s important to look at the 3% SDLT surcharge for second properties which can apply in certain circumstances.
Get in touch with us to discuss further and get a no obligation review of your circumstances.