Stamp Duty Multiple Dwelling Relief

If you’re considering a purchase of multiple properties, read our comprehensive guide on Stamp Duty Multiple Dwelling Relief.

stamp duty multiple dwelling relief

(6-minute read)

We will cover:

  • The list of criteria to be eligible for Multiple Dwellings Relief (MDR)
  • How your Stamp Duty will be reduced by this relief

Stamp Duty Multiple Dwellings Relief: Granny Annex 

Are you considering adding a ‘granny annex’ to your property?

Not only can it provide additional space for your loved ones, but it can also offer a unique opportunity to take advantage of Stamp Duty Multiple Dwelling Relief (MDR).

In this blog post, we will delve into the requirements for MDR eligibility, specifically focusing on the tests used by HMRC to qualify as an annexe or granny flat.

Checklist for Multiple Dwellings Relief

In a nutshell…

  • To be eligible for MDR, an annex or granny flat must be either located on the same grounds as the primary residence or attached to it.
  • Furthermore, the main dwelling must represent at least two-thirds of the total purchase price of the two dwellings.
  • The annexe or granny flat should also be a separate single dwelling in its own right, providing an independent living space for its occupants.
  • It should offer the means to lead a private domestic existence, maintaining the privacy and autonomy of its residents.

In the following sections, we will explore the intricacies of MDR and how it can be applied to annexes or granny flats.

Multiple Dwellings Relief Example 

To illustrate how Stamp Duty Multiple Dwelling Relief (MDR) works in practice, let’s consider a hypothetical scenario.

Suppose you’re making a purchase of multiple properties, consisting of four houses, each valued at £500,000, for a total purchase price of £2 million.

To calculate the tax liability under MDR, the first step is to determine the average amount allocated per dwelling.

In this case, the total purchase price (£2 million) is divided by the number of dwellings (four), resulting in £500,000 per dwelling.

Next, the tax due is calculated based on the applicable Stamp Duty Land Tax (SDLT) rates.

The SDLT rates for residential property in England and Northern Ireland are as follows:

  • Up to £250,000: 0%
  • £250,001 to £925,000: 5%
  • £925,001 to £1.5 million: 10%
  • Above £1.5 million: 12%

Considering our scenario, the first £250,000 allocated to each dwelling falls within the 0% tax bracket.

Therefore, there is no SDLT payable on this portion. However, the remaining £250,000 (£500,000 in total) per dwelling attracts a 5% tax rate.

Multiplying the tax rate (5%) by the taxable amount (£250,000), we find that the tax due for each dwelling is £12,500. As there are four dwellings, the total SDLT payable under MDR would amount to £50,000 (£12,500 x 4).

It’s important to note that SDLT rates and thresholds are subject to change. Therefore, it’s advisable to consult the latest government guidelines or seek professional advice to ensure accurate calculations based on current regulations.

Stamp Duty Multiple Dwelling Relief can offer significant tax savings when purchasing multiple properties.

By understanding the calculation process and staying updated on the prevailing SDLT rates, you can make informed decisions and potentially reduce your tax burden.

As always, consulting with a tax professional is recommended to ensure compliance with the latest regulations and to maximise the benefits of MDR.

Test for Multiple Dwellings Relief

When determining the eligibility of a property for Stamp Duty Multiple Dwellings Relief (MDR), several factors come into play.

It’s essential to assess whether the property meets the criteria for being considered a separate dwelling in its own right.

Let’s explore some of the key considerations:

1.Suitability for Use as a Dwelling: A property must be suitable for use as a single dwelling, meaning it should be independent enough to function as a dwelling on its own. Evidence must demonstrate that each dwelling is sufficiently independent to be considered a separate dwelling, rather than a part of a larger dwelling.

2.Sleeping Area: A dwelling should have a designated area for sleeping, typically with appropriate lighting, power points, and a window. This space should be separate from the living area.

3.Living Area: A dwelling should provide a suitable living area, offering space for day-to-day activities such as seating, tables, storage, and visitor accommodation. It should have adequate lighting, power points, heating, and a window.

4.Kitchen: A dwelling should have an area where meals can be prepared and eaten. Although certain appliances like cookers or fridges may not be present at the time of the transaction, the infrastructure, such as plumbing and power sources, should be in place.

5.Independent Entrances: Each dwelling should have independent access, either through separate entrances from the outside or via common parts in the case of flats. Common parts accessible through lockable doors, such as hallways or staircases, should be allocated to each dwelling.

6.Privacy and Interconnecting Doors: Privacy between dwellings is crucial. While interconnecting doors are possible, they should be capable of being locked or made secure from both sides. The number and type of interconnecting doors, as well as their fireproofing and soundproofing qualities, affect the classification as separate single dwellings.

7.Control of Utilities: A single dwelling should have control over most, if not all, of the utility services it requires. If an annex or secondary dwelling lacks control over utilities without entering another dwelling, it may not be considered a separate dwelling.

8.Legal Constraints: Legal conditions, such as planning restrictions or restrictive covenants, can impact the suitability of a property as a separate dwelling. Compliance with these conditions will be a factor in determining eligibility.

Considering these factors, it becomes clear that assessing the eligibility of a property for MDR requires careful consideration and expert knowledge.

While indicators such as council tax assessments or marketing materials can provide some insight, they alone are not determinative.

To ensure accurate evaluations and maximise the benefits of Stamp Duty Multiple Dwellings Relief, it is highly recommended to seek professional tax advice.

An experienced tax professional can navigate the complexities, assess the specific circumstances of your property, and provide tailored guidance to optimise your tax position.

Don’t miss out on the benefits of MDR.

Contact us today to benefit from our expertise and make informed decisions regarding your property portfolio.

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Kind regards Ilyas