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SDLT: multiple dwellings, multiple complexities

/ 17 December 2020

Andrew Levene

Stamp Duty Land Tax (‘SDLT’) is not a simple tax. How much you pay may depend on

  • what you are buying (commercial, residential or mixed?)
  • how many properties are included in the purchase (‘multiple dwellings relief’ or ‘MDR’)
  • the use to which you will be putting the property (main home or buy-to-let?)
  • how much you are paying (SDLT rates are tiered)
  • where the property is located (Scotland and Wales don’t charge SDLT but have their own taxes with different rules)
  • who you are (a first time buyer?)

From April 2021, where you live will be added to the list, with the introduction of a 2% surcharge payable on purchases by ‘non-residents’ (for which a special and painfully complicated definition applies – more on that in a later briefing).

As regards the first bullet point, SDLT is usually lower if the property purchased is not wholly ‘residential’. This has led to some interesting but often hopeless claims to the lower rates where a house purchased as a main residence includes a ‘work-from-home’ office: we’ve previously commented on such claims here.

Multiple dwellings relief

Perhaps more promisingly, where the numbers work, is the use of MDR. This can be claimed if an individual (but not, for the kind of purchase considered in this note, a company) buys more than one dwelling in a single transaction. It works by reducing the SDLT to what it would be if the total price paid were to be allocated equally between the properties.

This can achieve striking reductions. For example, SDLT on a £2m house is (until 31 March 2021) £138,750. But that falls to £57,500 if the house includes a ‘granny annexe’ that can be shown to be a separate ‘dwelling’. Whether that is the case is highly fact-dependent: the question is whether the annexe is such that it could if necessary be occupied independently of the main house. Is any internal communication door lockable? Does it have its own external access? Are utilities separately metered? The recent case of Fiander & Brower v HMRC contains some helpful pointers to what makes (or, in that case, didn’t make) for a separate ‘dwelling’.

In some circumstances, planning goes a bit further. MDR does not require that the ‘multiple dwellings’ in question should be contiguous or in any way related to each other – simply that they are purchased as part of the same (or a ‘linked’) transaction. In principle, therefore, MDR could be claimed in respect of the purchase in a single bargain of an expensive main home together with a very cheap property 300 miles away. And it is easy to envisage situations in which the SDLT saving may be greater than the additional cost of the ‘makeweight’ property.

MDR and the purchase of residential properties

There is however one point that must not be overlooked. It’s to do with the way in which MDR interacts with the additional 3% surcharge on the purchase of residential properties.

You are exempt from the 3% surcharge if you are buying a replacement main home: but this exemption does not apply if you are buying the main home along with one (or more) other dwellings in a single transaction, unless all the other dwellings are ‘subsidiary’ to the main home. Among other things, this means that they must be within the same grounds as the main home. So, while a granny annexe will almost never deny exemption from the 3% surcharge (assuming the other conditions are fulfilled), an unconnected ‘makeweight’ property elsewhere that is thrown into the deal in order to secure MDR always will.

Thus, if you are attracted to accessing MDR planning by use of a ‘makeweight’ additional property, it will always be necessary to crunch the numbers carefully. And in doing so, bear in mind that in just three months’ time on 31 March, the SDLT nil rate reverts to £125,000 from its current £500,000.

For more information about MDR, SDLT and other property taxes, please get in touch with your usual BKL contact or use our enquiry form.

This article was republished in TAXline (February 2021) and is available on the ICAEW website to ICAEW members.

Andrew Levene

Director of Property Taxes

T +44 (0)20 8922 9394
E andrew.levene@bkl.co.uk

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