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SDLT: Reform of mixed-use and multi-buys


Natasha Heron looks at a new consultation that seeks to tackle multiple dwellings relief and change how stamp duty land tax is calculated when purchasing mixed-use property.

4th Feb 2022
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Multiple dwellings relief (MDR) is available when at least two dwellings are purchased in a single transaction, or as part of a series of linked transactions between the same vendor and purchaser.

A purchaser can choose to apply the rate of stamp duty land tax (SDLT) determined by the average value of the dwellings, rather than the combined value. This enables the purchaser to benefit from multiple nil-rate and lower percentage bandings, significantly reducing the SDLT payable.

MDR has gained a lot of attention recently as many cases have been heard in the tax courts, to determine what features must be present for a property to qualify as a ‘dwelling’ for the relief.

HMRC has successfully challenged the majority of cases and as a result it is seeking to reform the relief in order to tackle the abusive claims. However, the options suggested in the consultation appear to be aimed at restricting homeowners from obtaining the relief.

Proposed MDR changes

The options suggested to reform MDR are:

  1. Restrict the relief so MDR can only be claimed if all properties are purchased for a qualifying business use.
  2. Restrict the relief so MDR only applies to properties purchased for a qualifying business use.
  3. Introduce a ‘subsidiary dwelling’ rule which could prevent smaller subsidiary dwellings such as a granny annex from qualifying for the relief due to their size or value.
  4. MDR to only apply to purchases which include three or more dwellings.

Options 1 and 2 will restrict homeowners’ ability to claim the MDR as they purchase properties for occupation rather than to develop for sale or rent to third parties.

Option 3 will prevent smaller dwellings such as a granny annex from qualifying for the relief if their value is less than one third of the total purchase price. If the annex did qualify for the relief its size would also automatically trigger the 3% surcharge.

Currently an annex can qualify for MDR if its size is less than one third of the purchase price and also avoid triggering the 3% surcharge, thus allowing purchasers to maximise potential savings. This approach would resolve an inconsistency between the 3% surcharge and MDR rules.

Option 4 will change the MDR to be targeted on blocks of flats or rural purchases due to the space required for three or more dwellings. This means a significant number of properties will fall outside the scope of the relief.

Multi-generational families hit

The government recognises that for some families with vulnerable members, such as elderly relatives, their needs are best met through separate self-contained residential accommodation on the same site as the family home. However, the implementation of the MDR options above could discourage such arrangements.

Typically, properties with additional self-contained accommodation are more expensive due to the attractiveness of being able to house a relative in a second smaller dwelling. If such purchases were not within the scope of the relief purchasers would require additional funds to be diverted to paying the SDLT liability rather than purchasing a property in a higher price bracket with such features.

SDLT on mixed-use property

Mixed-use property is one which consists of both residential and non-residential elements; for example, shops with flats above, pubs, and bed & breakfast properties. Such purchases are subject to non-residential rates of SDLT.

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