The Stamp Duty Holiday ends this month, but there will still be 'reliefs' in place for homebuyers; that allow them to pay lower rates of SDLT in certain circumstances.
For example, First-time Buyers are eligible for a form of SDLT relief; and homebuyers purchasing multiple properties may be able to claim Multiple Dwellings Relief (MDR).
What is Multiple Dwellings Relief for SDLT?
Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT) is a relief that, as the name suggests, can be claimed when a qualifying taxpayer purchases more than one ‘dwelling’ in a transaction.
The MDR allows SDLT rates to be applied to the average value of the collective properties, instead of the total purchase price.
When can you claim Multiple Dwellings Relief?
To be eligible to claim Multiple Dwellings Relief, your transaction must be of at least two dwellings, or be of a single dwelling IF it is part of a ‘linked transaction’.
A dwelling is defined as a house, flat or place of residence.
How is a ‘dwelling’ defined for SDLT?
For the purpose of SDLT, a building is a dwelling if it is used as, suitable to be used as, or is being adapted for, a single dwelling.
For further clarification, please refer to HMRC’s SDLT multiple dwellings manual here.
What is a SDLT linked transaction?
Under SDLT, a ‘linked transaction’ is one where multiple property purchases are undertaken between the same buyer and seller.
Generally, the rate of SDLT is applied on the value of the collective properties in the linked transaction; this rate of tax is therefore potentially higher than that of an individual property.
However, the MDR applies and the rate of tax is charged by the average price of the dwellings.
When does Multiple Dwellings Relief not apply?
MDR does not apply to the transfer of a freehold reversion or head lease if one of the dwellings has a long lease (21 years or higher).
The chargeable tax rate for this type of freehold reversion/head lease, or any other non-residential property included within the purchase, is the normal rate without relief.
If the number of dwellings is reduced within 3 years of the initial transaction, then you may need to fill in an additional return and recalculate the tax due.
Do I have to pay the 3% SDLT Surcharge?
If you already own a home, there is a 3% SDLT surcharge which is chargeable upon purchase of any additional residential property. This does not include homes that are bought to replace current homes.
Does the 3% SDLT surcharge apply to mixed-use properties?
Properties bought in addition to a residential home that are mixed-use, i.e. they have a commercial use as well as residential, are exempt from the 3% surcharge. An example of a mixed-use property could be a residential flat situated above a corner shop.
Does an annexe qualify for multiple dwelling relief?
It depends on whether the annexe is classed as being a separate dwelling. A self-contained annexe or outbuilding may be considered as a separate dwelling; however, this isn’t always the case.
There have been several rulings on this, all of which differ in circumstance.
For example, In David Merchant and Sarah Gater v HMRC, the annexe in question did have the physical elements that would indicate separate living.
However, the annexe did not have a separate postal address, or its own gas and electricity meter or even council tax billing.
Furthermore, the annexe had no independent external access, so was deemed by the FTT as not being a separate dwelling and therefore MDR wasn’t applicable.
It’s not always obvious whether a building constitutes a separate dwelling. If you would like to discuss your specific circumstances, feel free to give us a call. We offer a free initial chat for all new clients.
How to claim Multiple Dwellings Relief
A conveyancer will calculate your SDLT after applying for MDR. The claim will be made within the Land Transaction Return which the conveyancer submits on your behalf on completion.