Whether you’re a property investor looking to add to your portfolio or an individual acquiring your next home, Stamp Duty Land Tax (SDLT) can be a costly and burdensome chunk of cash to find. Your conveyancer will often deal with the calculation and submission of the SDLT Return. You as a purchaser will see this cost on your completion statement. SDLT is often begrudgingly accepted as a necessary cost to purchase and is rarely questioned. However could you potentially be missing out on the valuable SDLT Multiple Dwellings Relief (MDR)?
Currently, the rate of SDLT paid on residential properties (ignoring first time buyer reductions) are as follows:
Up to £125,000 – 0%
£125,001 to £250,000 – 2%
£250,001 to £925,000 – 5%
£925,001 to £1.5 million – 10%
Above £1.5 million – 12%
An extra 3% on top of these percentages applies if you already own residential property in addition to the property being purchased.
This means that a property investor looking to acquire an additional property valued at £400,000, will pay SDLT of £22,000 on completion.
HMOs and Flats
But what if this property was a House of Multiple Occupancy (HMO) and consisted of 4 individual, self-contained ‘dwellings’? That is to say each unit has its own kitchenette and bathroom.
In this case, Multiple Dwellings Relief will apply. The way this works in practice is that you divide the £400,000 over the number of dwellings, giving a value of £100,000 per dwelling. You then work out SDLT individually on each £100,000 unit. Each unit would fall within the first SDLT band (up to £125,000) and be subject to 3% SDLT (the rate for additional properties). This would result in a total SDLT bill of £12,000 ( £100,000 x 3% x 4 dwellings) – a £10,000 saving compared with when MDR is not claimed!
Do note that Multiple Dwellings Relief cannot reduce the total SDLT payable to less than 1% of what it would be without the relief applied.
In the case of a block of flats or shared accommodation (where it may be the case that there is one large communal kitchen per floor, with individual bathrooms) each floor will class as an individual dwelling, not each tenanted room.
Now, what if instead of an HMO our £400,000 property in question was a residential home with an annex attached to the side of it? This annex is self-contained, has its own bathroom and kitchen and separate access. There is no through access to the main house.
In this situation, it is likely you could claim MDR to treat the house and the annex as separate dwellings. That way you would reduce the SDLT bill in the same way as above.
When deciding on whether an annex can be classed as a separate dwelling a variety of factors are considered. That includes whether the property has:
- Separate access and sufficient privacy (i.e. there is no open access to the main house)
- A separate postal address
- The facilities required for separate occupation (including a sleeping area, living area, kitchen, and bathroom)
- A separate rating for council tax
- Separate meters for utilities
HMRC have stated previously that the inclusion of planning restrictions inhibiting use as a separate dwelling will be ‘a factor’ in considering suitability of use as a dwelling. Although actual use will prove more helpful than theoretical use.
Not all of the above factors need to be present simultaneously for MDR to be claimable. However the existence of separate and secure access, in addition to self-contained facilities, is almost always required for an MDR relief claim to be considered.
A linked transactions for the purpose of SDLT takes place when a buyer purchases several properties from the same seller, or someone linked to the seller. There’s no specific time frame to determine if two property purchases are linked, so purchases from the same seller that are years apart could be considered ‘linked’. In this situation, say you purchased two properties from the same seller, one for £200,000 and another for £500,000. Considering these two purchases separately, SDLT payable (using the additional 3% rates again) would be a total of £37,500. However, by claiming MDR relief and dividing the total consideration over the 2 properties evenly, total SDLT payable is £36,000. A tax saving of £1,500.
Time limits and Multiple Dwellings Relief
If you have not claimed MDR on the original return, you will have 12 months from the original filing date to make the necessary amendment. The original filing deadline is 14 days after the property purchase.
Stamp Duty Land Tax can be complex and navigating its many rules and reliefs can be a minefield. Purchasing additional property for any purpose can be an expensive prospect, and so any opportunity to reduce the SDLT burden should be welcomed. Multiple Dwellings Relief can be a very valuable claim in reducing this burden and could potentially save you thousands!
Get in touch with us to discuss Multiple Dwellings Relief
If you are a client of Friend & Grant and would like more information about making a claim for MDR contact Darren. If you are not a client of Friend & Grant why not arrange a free initial consultation and find out about the many ways we can help you minimise your tax liabilities?
The content in this blog is correct as at 15 September 2022. See terms and conditions.