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Multiple Dwellings Relief (MDR) is a tax relief that allows buyers to reduce their Stamp Duty Land Tax (SDLT) liability when purchasing two or more residential properties in a single transaction.
Important: Multiple dwellings relief (MDR) has been abolished and can no longer be claimed for transactions which complete, or substantially perform, on or after 1 June 2024. Additionally, in the Autumn Budget 2024, the government increased buy to let stamp duty surcharge from 3% to 5% as of 31st October 2024.
Stamp Duty Land Tax (SDLT) applies when you buy a freehold, leasehold, or shared ownership property, whether residential or non-residential. The amount of SDLT owed increases based on the purchase price, with different rates applied to various property price bands, second homes, and non-UK residents. SDLT can significantly impact your purchase costs, so it’s important to understand how it works and what reliefs, such as Multiple Dwellings Relief (MDR), are available to minimize the tax burden.
Multiple Dwellings Relief allows purchasers to claim a reduced rate of SDLT when buying multiple dwellings in a single transaction. This relief is particularly beneficial for property investors and landlords as it helps reduce the tax burden associated with acquiring multiple properties.
However, as of June 1, 2024, Multiple Dwellings Relief has been abolished, and it can no longer be claimed for transactions that complete or substantially perform on or after this date.
Here’s breakdown of Stamp Duty Land Tax (SDLT) rates for primary residences, buy-to-let/secondary homes (with an additional 5% surcharge), and non-UK residents (with an additional 2% surcharge).
To benefit from MDR, a purchaser must buy two or more dwellings in a single transaction, either through freehold or leasehold interests. Additional criteria for claiming the relief are as follows:
1) Transaction Timing:
- Contracts must be exchanged on or before March 6, 2024.
- Contracts must be substantially performed before June 1, 2024.
- Transactions must complete before June 1, 2024.
2) Minimum Tax Rate: Under MDR, the minimum rate of SDLT applicable is 1% of the total amount paid for the dwellings.
3) Calculation of Relief: The relief is calculated based on the average price of the dwellings, allowing the total consideration to be spread across the properties, resulting in a lower effective tax rate.
Important: Multiple dwellings relief (MDR) has been abolished and can no longer be claimed for transactions which complete, or substantially perform, on or after 1 June 2024.
As well as having exchanged contracts before the cut off date of March 6th and performed before June 1st, to qualify for MDR, the following conditions must also be met:
1) Multiple Dwellings: The purchase must involve two or more residential properties, which are classified as separate dwellings.
2) Single Transaction: The properties must be bought in a single transaction. If properties are purchased separately, MDR will not apply.
3) Residential Use: The dwellings must be intended for residential use, which typically excludes commercial properties or mixed-use buildings where residential use is incidental.
Using the average price, reference the standard residential SDLT rates to calculate the tax due. The current rates are structured progressively, meaning the rate increases with higher price brackets.
Stamp Duty Land Tax Rates
- 0% on the portion up to £250,000
- 5% on the portion from £250,001 to £925,000
- 10% on the portion from £925,001 to £1.5 million
- 12% on the portion above £1.5 million
You’ll usually have to pay a 5% surcharge on top of the standard SDLT rates if buying a new residential property means you’ll own more than one. This means the effective SDLT for a second property look like the rates below.
Stamp Duty Land Tax Rates For A Second Property
- 5% on the portion up to £250,000
- 10% on the next £675,000 (the portion from £250,001 to £925,000)
- 15% on the next £575,000 (the portion from £925,001 to £1.5 million)
- 17% on the remaining amount (the portion above £1.5 million)
If you’re not present in the UK for at least 183 days (6 months) during the 12 months before your purchase you are ‘not a UK resident’ for the purposes of SDLT. In this scenario you’ll usually pay an additional 2% surcharge.
The calculation for MDR involves 3 steps:
- Determine the Total Purchase Price: Add the prices of all the properties being acquired.
- Calculate the Average Price: Divide the total purchase price by the number of dwellings.
- Apply the SDLT Rates: Use the average price to determine the SDLT liability based on the standard residential rates in the section above.
Remember that under MDR, the minimum rate of SDLT applicable is 1% of the total amount paid for the dwellings.
To be eligible for claiming MDR, a property needs to qualify as a 'dwelling'. This means it needs to have a few basic facilities such as:
- A Kitchen
- A Bathroom
- Interlocking doors
Most utilities being independent.
These facilities are the minimum that are required for a comfortable living standard. This means you can't classify say a room of a larger building as an entire dwelling even if you are renting it out separately.
Properties of the following nature can be considered applicable for Multiple Dwellings Relief:
- Houses, apartments, or flats bought in bulk
- Self-contained annexe purchased with a main house
- Mixed-use property (e.g., a shop with a flat above)
