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3% Stamp Duty Land Tax (SDLT) surcharge can apply in a transaction involving non-residential property

Multiple Dwellings Relief (MDR) is a relatively well known and well used SDLT relief. It works by allowing a purchaser to calculate SDLT payable on the average property value and then multiplying that result by the number of properties to end up with a lower SDLT charge.  Here tax director James Greenhalgh explains more.

When residential and non-residential property are purchased together – a ‘mixed purchase’, the non-residential rates up to 5% SDLT ordinarily apply on the VAT inclusive purchase price.

However, where more than one dwelling is acquired in a mixed purchase, it can be beneficial to make a claim for MDR. The effect of MDR is to tax the residential element at an effective rate calculated as the rate of tax at the residential rates that would apply to the purchase of one dwelling for the average price of all the dwellings.

As an example, assume an individual purchases three residential properties for £1.5M. Without MDR SDLT would be payable at residential rates on £1.5M. This would give rise to SDLT of £123,750 calculated as:

  • 3% of £500,000 – £15,000;
  • 8% of £425,000 – £34,000; and
  • 13% of £575,000 – £74,750.

By making an MDR claim though, it is permitted to calculate SDLT on £500,000 (£1.5M divided by 3) and then multiply that result by 3. This gives rise to SDLT of £45,000 – i.e., 3% of £500,000 multiplied by 3.

As this example demonstrates, MDR provides an opportunity for a significant tax savings.

This saving can be even greater for transactions which include an element of non-residential land  because, arguably, the 3% SDLT surcharge should not apply in these cases. An example would be the acquisition of a leasehold interest in a ground floor commercial unit and leasehold interests in residential flats on the floors above. The residential units could suffer a SDLT charge as low as 1% due to the new interpretation of the rules by HMRC.

Higher ‘second home’ residential rates were typically applied for the purposes of this calculation (unless the dwellings were purpose-built student accommodation), which was supported by HMRC guidance. HMRC have now amended their official guidance to state that the lower ‘homeowner’ rates can be applied where the non-residential element is neither negligible nor artificial.

Please feel free to contact James to find out more james.greenhalgh@cowgills.co.uk


The information was correct at time of publishing but may now be out of date.

Posted by James Greenhalgh
10th December, 2020
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