Lowdown on stamp duty and multiple dwelling tax relief

ALTHOUGH solicitors are not financial advisers and are not either regulated or permitted to provide clients with financial advice, we are involved in the calculation and payment of the Stamp Duty Land Tax (SDLT) payable on the purchase of property to HMRC.

Whilst the tax is not payable on the lower price bracket of transactions, the majority do incur the liability and SDLT is calculated on the purchase price of the property.

Some transactions may relate to more than one property but are inter dependent.

For example, multi-generational living is an increasingly common option for families who may have elderly relatives and are looking to accommodate them within the family home by way of a ‘granny annexe’ or similar.

Quite often, two houses are sold in order to buy one property large enough to accommodate the family plus dependent or elderly parents.

Buying a home with separate annexe accommodation often represents a costly move and, of course, incurs the SDLT liability.

However, if the property truly does have a separate annexe then there is an option to claim Multiple Dwelling Relief (MDR).

This is widely used for development purchases of more than one property but many buyers may not be aware that the relief is available to private buyers, in the right circumstances.

Furthermore, many residential conveyancers may not be aware such a relief is available and as such could be potentially negligent if they fail to advise their clients when MDR can be applied.

A qualifying annexe can be attached to the main house or even part of it but must have a separate entrance and lockable door between the two properties and include its own kitchen and bathroom/shower facilities as well as the living/bedroom space.

To illustrate the potential savings, if we look at an example of house purchase which includes a separate qualifying annexe and say the price is £1.4m. Assuming the higher rate SDLT does not apply, the SDLT on the full purchase price is £81,250.

Whereas if the SDLT Multiple Dwelling Relief is applied the SDLT is £45,000, resulting in a saving of £36,250, which will go a long way to cover other moving costs and/or improvements.

The way the relief works is the price is divided by two and the SDLT calculated on the half value and then multiplied by two. So £1.4m divided by two equals £700,000.

The SDLT on £700,00 is £22,500, times two, which equals £45,000, which results in the £36,250 saving.

The Muliple Dwelling Relief is claimed when the buyer’s conveyancer submits the SDLT return to HMRC via the online portal just after legal completion of the purchase and so no separate tax return is required.

The return must be lodged with HMRC within 14 days of the completion date of the purchase and there is also a period of 12 months from the date of completion to amend any HMRC SDLT return.

This is useful if the incorrect return was made and Multiple Dwelling Relief was not initially claimed.

However, the window for MDR may soon be closing as the Government is holding a consultation on these reliefs.

This usually heralds a tightening of the rules and the inference is that Multiple Dwelling Relief will be removed, amended or reduced.