The abolition of multiple dwellings relief: why the number of dwellings is still relevant

As of 1 June 2024, multiple dwellings relief (MDR) will no longer apply (except, in general, where contracts were exchanged on or before 6 March 2024). However, identifying the number of dwellings in a residential property will continue to be important in a number of situations (even if fewer than previously).

The six or more dwellings rule

Under what might be termed the six or more dwellings rule, the acquisition of six or more dwellings in a single transaction is treated as the acquisition of non-residential property, unless MDR is claimed. The six or more dwellings rule remains intact – it is unaffected by the abolition of MDR.

All but one of dwellings subsidiary

While under MDR the more the number of dwellings acquired, the greater the likelihood of an SDLT saving, there may be other situations where the fewer the number of dwellings acquired (viewed as at the effective date, generally completion), the greater the likelihood of an SDLT saving.

Where one of two or more dwellings acquired under a single transaction is intended to replace the only or main residence of the purchaser, the question arises as to whether the higher rate of SDLT applicable to the acquisition of additional dwellings (i.e. the 3% surcharge) applies. So long as the dwelling intended to be the purchaser’s only or main residence accounts for no less than two-thirds of the total price of all the dwellings, the 3% surcharge should not apply.

Example 1

A house with a wholly and genuinely self-contained and distinct annex is acquired for a total of £3 million, of which the house alone accounts for  £2 million. Here, the purchaser should be treated (for the purposes of the 3% additional dwellings surcharge) as acquiring a single dwelling qualifying, potentially, as a “replacement sole or main residence”.

Example 2

An apartment block of four flats is acquired for a total of £3 million and two of the flats, having a combined total value of £2.7 million, are interconnecting. As the two flats are interconnecting, it is likely that they should be treated for SDLT purposes as a single dwelling. Therefore, if the purchaser intends these interconnecting flats to replace their previous only or main residence, as these two flats account for two-thirds of the consideration and can be properly viewed as a single dwelling, the 3% SDLT surcharge should not apply.

If, however, the flats were wholly separate non-interconnecting units, then, subject to the precise facts, each would be likely to be treated as a distinct dwelling in its own right, with the result that each dwelling would account for less than two-thirds of the total consideration and, therefore, with no dwelling being “subsidiary” to any other dwelling in the block, the 3% surcharge would apply to the full £3 million regardless of which (if any) of the flats would be intended as the purchaser’s only or main residence. (Due to the linked transactions rules, the 3% SDLT surcharge would apply in full in the same way even if the acquisition of the intended sole or main residence replacement flat were to be effected separately from the acquisition of the other flat(s).)

There is a reasonable body of case law in connection with MDR where what the taxpayer claimed were separate dwelling units comprised, for SDLT purposes, a single dwelling unit. It is conceivable that, in the right circumstances (extending possibly to cases where a contract for the acquisition of a block of flats comprised of several independent dwelling units is made conditional on two or more of the units being interconnected on completion), this very case law could yet assist a taxpayer seeking to take advantage of (what might be termed) the multiple dwellings two-thirds value rule and so avoid the 3% SDLT surcharge applicable to the acquisition of additional dwellings.

Therefore, if you are acquiring a replacement sole or main residence together with another dwelling (or other dwellings), whether or not the 3% SDLT surcharge applies will likely depend on the proportionate value of the intended sole or main residence.

If you have questions or concerns about the issues raised in this article, please contact Michael Fluss.