23 August 2022
A little-known property stamp tax relief, known as ‘multiple dwellings relief’ (MDR), can provide significant benefits to those buying a portfolio of residential properties. New statistics published by HMRC highlight that it is much more commonly claimed than previously anticipated.
When an individual disposes of multiple residential properties in a single transaction (or sometimes in a series of linked transactions), the relevant property stamp tax payable by the buyer is typically calculated by looking at the total consideration given for all of the properties sold. This can sometimes come as a surprise to those who might expect the property stamp tax to be calculated separately on each dwelling.
The relevant property stamp taxes referred to above are: stamp duty land tax (SDLT) in England and Northern Ireland; the land and buildings transfer tax (LBTT) in Scotland; and the land transaction tax (LTT) in Wales.
When there are multiple residential dwellings being acquired, if all relevant criteria is fulfilled, it should be possible to claim for MDR to apply, which can reduce the amount of property stamp tax due. MDR broadly works by calculating the property stamp tax due on the average amount of consideration given for each residential dwelling acquired. This average is then multiplied by the number of residential dwellings to provide the total property stamp tax payment due.
The tax savings can be significant. For example, MDR can commonly reduce the SDLT on an acquisition of buy-to-let properties in England to a rate of 3%, and in very particular circumstances, to a rate as low as 1%.
In revised statistics recently published by HMRC, it has been confirmed that there were errors in the calculations of how much MDR has been claimed in recent years, resulting in a significant understatement of the cost to the Treasury. It is now estimated that the cost of MDR was £390m (as opposed to the original estimate of £35m) in the year to 31 March 2019 and £470m (as opposed to the original estimate of £45m) in the year to 31 March 2020. It is further estimated that the cost of MDR could be as high as £730m in the year to 31 March 2022.
The level of MDR claimed in recent years and its anticipated increase is unlikely to come as a surprise to many buy-to-let landlords. Following the introduction of restrictions on the tax relief available for mortgage interest, many landlords have sought to downsize their portfolios. This can often involve selling the portfolio in tranches or as a whole to property investors or developers, who may then claim MDR on acquisition. Alternatively, many landlords have sought to transfer their property portfolios to a company, which can trigger property stamp taxes on which MDR may potentially be claimed. HMRC are also concerned about rogue tax repayment agents making spurious claims and warned taxpayers about the adverse consequences of such claims earlier the year.
Whilst HMRC are clearly focused on tackling abuse of MDR, we could see the amount of relief claimed increase even further in the coming years as more buy-to-let landlords seek to exit the market, given the increase in mortgage interest rates for many landlords.