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Property: How multi-dwelling relief could save you thousands in stamp duty

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Suburbia. Modern housing estate. England.
If you are purchasing a property with a self-contained annexe you could be eligible for MDR. Photo: Getty

If you’re buying a property with an annexe, you could potentially make huge savings on Stamp Duty thanks to the little-known-about Multiple Dwellings Relief (MDR).

What is Multiple Dwellings Relief?

MDR was introduced in 2011 as an incentive for investors buying multiple properties for their portfolio, but it can also be claimed on annexes that sit within the grounds of a property. The calculation of Stamp Duty Land Tax (SDLT) increases with a property’s value but, if the property you’re purchasing has a self-contained annexe, either separate or integrated, you may be able to treat this as a second property, thereby reducing SDLT.

For example, if you buy a house for £1m ($1.4m), the standard SDLT due is £61,250. If this same property has an annexe and qualifies for MDR, the tax is split equally between the two properties, irrespective of their size, at £500,000 each. The stamp duty owed would be two times £22,500, or £45,000, a saving of £16,250 compared to if it had been a single dwelling.

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Which properties are eligible for MDR?

Much of the confusion around MDR comes from clarifying which properties are actually eligible. The official definition is that a building or part of a building counts as a dwelling if it is “used or is suitable for use as a single dwelling” on the date of transaction. 

In reality the definition is more nuanced and HMRC places emphasis on several factors. These include individual council tax bills, independent security and access, separate utilities and being separately registered with the Post Office. 

It also looks at whether the property was marketed as having a self-contained annexe and if someone could live there independently. Each transaction is looked at on a case-by-case basis but even if your annexe is integrated into the main house it may be eligible. 

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“The guidance is very grey with extremely limited information out there; even the information that is out there is so difficult to find and interpret that this creates an advice vacuum and it is estimated that one in four transactions overpay,” says Shane Mockler, head of new business SDLT at Cap Ex Associates Tax Ltd.

How to claim MDR

If you are eligible for MDR and your transaction hasn’t been finalised, speak to your conveyancer about what is required. If you completed less than 12 months and 14 days ago, you can make an amend with HMRC. 

“To reclaim the funds you will need the Signed Contract, Signed TR1 Land Transfer, SDLT1 Form and SDLT5 Certificate. All of these documents will be requestable from your Conveyancer,” says Shane.

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Can you get MDR backdated?

If you completed over a year ago, there is still a chance you might be able to get a rebate but it will be more complicated and you will need to speak to a property tax advisor. “We can make reclaims older than this to HMRC — up to 4 years — but this becomes at HMRC's discretion,” says Shane.

Possible Challenges

You need to make sure that you are confident of your eligibility before you put in for a claim. HMRC has been given new powers to investigate MDR and there is now a three-year clawback period, during which relief can be withdrawn if any of the conditions are not met. If an error is found to have been made, it can be expensive. Claiming MDR shouldn’t affect anything when it comes to selling your property — such as Capital Gains Tax — but it is always best to speak to your accountant as every case is different.

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