You may well know of the 3% increase in SDLT (Stamp Duty Land Tax) on second homes, which will come into effect at the beginning of April this year. It was first announced in George Osborne’s Autumn Statement last year, and we went into further detail about it in one of our more recent blog posts.
For those investors who wish to invest in multiple properties, they may be able to limit their property tax bill due to MDR (Multiple Dwellings Relief).
What is Multiple Dwellings Relief (MDR)?
Put simply, MDR allows you to apply SDLT to the mean value of the dwellings you have purchased, as opposed to paying the SDLT on the actual value of each dwelling.
For example, say you were to purchase 10 properties for a total of £3 million; rather than being charged the new SDLT rates for the entire purchase – which would be £363,750 – you could pay less by claiming MDR with the following calculation:
Total sum of dwellings purchased / number of dwellings
£3,000,000 / 10
£125,000 @ 3%* = £3,750
£125,000 @ 5%* = £6,250
£50,000 @ 8%* = £4,000
* Using the new rates, due to come into effect on 1st April 2016.
£14,000 x 10 = £140,000
The total amount payable would be £140,000 – a saving of £223,750.
It is also worth noting that the sum of the above calculation is subject to a minimum rate of 1%.
Is MDR automatically applied?
Multiple dwellings relief must be claimed when purchasing more than one property, otherwise standard SDLT rates will be applied.
In some cases, it may not be worth claiming MDR, which is fully explained in this recent document.
What is considered a ‘dwelling’?
According to HMRC, a dwelling is “a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use”.
How can I find out more about this relief?
Multiple dwellings relief can work differently depending on your circumstances. We advise contacting Cai-Capital to find out more about how we can help when acquiring multiple properties.
You can also access further information online on the UK Government website.
We expect any uncertainties about the proposed 3% increase in Stamp Duty Land Tax to be clarified when George Osborne announces the UK Budget 2016 on Wednesday, 16th March at 12.30pm. Following the budget, we will be summarising the main points in relation to the property market in our next blog post.