Multiple Dwellings Relief (MDR)
This stamp duty land tax relief is to be abolished with effect for transactions with an effective date on or after 1 June 2024. Transitional rules mean that MDR can still be claimed for contracts which are exchanged on or before 6 March 2024, regardless of when completion takes place. This is subject to various exclusions, for example that there is no variation of the contract after that date.
This is another change that whilst it will only effect a relatively small group of taxpayers, will potentially have a large impact on these individuals.
How multiple dwelling relief operated is best shown by an example.
A. Propco buys five flats for £1 million, resulting in average price of £200,000. With regular SDLT rates on residential property of £1 million, the total SDLT payable would be £71,250, with 10% SDLT being applied on the top slice of the £1 million consideration.
B. However, with MDR, it is treated as Propco acquiring five flats of £200,000 each separately (total consideration of £1 million divided by five dwellings). The effect of this would be significant as the top slice of SDLT applied would be only 5% instead of 10% without MDR. The total SDLT payable with MDR would only be £30,000, resulting in a saving of £ 41,250 with MDR.
With the abolition of MDR, option B is no longer the case and the higher SDLT will be due.
There is probably a reason behind the abolition of this relief. Over the past few years there have been many claims made on the acquisition of houses with a granny flat, that instead of one property worth (for example) £1 million, this was for MDR purposes two properties worth £500k each, which reduces the SDLT by £16,250. Many of these claims have been challenged by HMRC on the basis of whether there are in fact two dwellings and many have been tested in the courts. By abolishing MDR this is no longer an issue to HMRC.
If you have any questions around the changes to Multiple Dwellings Relief, please contact us.
