The Government’s 2024 Spring Budget saw significant changes to the way property is taxed, including the imminent abolition of multiple dwelling relief. This will primarily affect investors looking to buy multiple properties at the same time, however, it could also affect you if you are buying a property that comprises more than one unit, such as a house with a distinct annex.
‘If you are purchasing a property with a separate granny annex and multiple dwelling relief applies to your purchase, it can save you thousands of pounds in stamp duty,’ explains Chloe Smart, a Director and the Head of Residential Property with Landsmiths Solicitors. ‘However, this relief will very shortly be abolished, so if you think an intended purchase may qualify, then speak to your solicitor as soon as possible.’
In this article, Chloe answers some of your questions about multiple dwelling relief and the recent changes.
What is multiple dwelling relief?
The amount of stamp duty you pay will usually depend on the purchase price of the property. If you are buying more than one property in a single transaction, or what HMRC considers to be linked transactions, then stamp duty will usually be calculated on their combined value. So, for example, if you are buying two flats in a block costing £350,000 and £300,000 respectively, and assuming you already own property, you will have to pay £39,500 in stamp duty. This is based on the total combined purchase price of £650,000. The first £250,000 is taxed at three per cent (£7,500), the remaining £400,000 at eight per cent (£32,000).
In contrast, where multiple dwelling relief is available, you will only pay £27,000 in stamp duty, a saving of £12,500. This is because this relief allows you to average the cost of the properties. In this way, each ‘nominal’ property valued at £325,000 (£650,000 divided by two, the number of properties) can benefit from the lower rate bands of stamp duty. So, in this example, you will pay stamp duty at three per cent on the first £250,000 of the averaged property price multiplied by the number of properties (£7,500 x 2 = £15,000), and at eight per cent on the remaining £75,000 (£6,000 x 2 = £12,000).
Who benefits from multiple dwelling relief?
Multiple dwelling relief can apply wherever you buy two or more dwellings in the same transaction. For example, an investor buying several new-build apartments to add to their portfolio can claim the relief, as they can if buying ‘off plan’ (although special rules then apply).
The key requirement is that all the properties should be suitable for use as separate dwellings. This means a house with a separate annex could qualify if both are sufficiently independent of each other and individually suitable for a person to occupy as their home. However, this can be a very grey area with HMRC sometimes challenging claims for multiple dwelling relief in the courts. So, it is imperative to get expert advice before making a claim.
How has the 2024 budget changed things?
In his recent budget, the Chancellor of the Exchequer abolished multiple dwelling relief.
Transitional provisions mean you may still be able to claim the relief in two situations:
• The first is where you exchanged contracts on or before 6 March 2024 (provided the terms of that contract have not been varied and it meets other conditions). In this case, you can claim multiple dwelling relief regardless of the date of completion.
• The second is where you have exchanged, and ‘substantially performed’ a contract before 1 June 2024. Although ‘substantially performed’ has a special meaning for tax purposes, this will usually mean completion of your purchase.
Can I still claim multiple dwelling relief?
If you exchanged contracts on or before 6 March 2024, you could still claim multiple dwelling relief. In some cases, you may even claim reimbursement from HMRC if you were entitled to the relief but did not claim it when you completed. There is a twelve-month deadline for such applications. So, if you think this could apply to you, speak to your solicitor without delay.
In all other cases, you will only be able to claim multiple dwelling relief if you complete your purchase before 1 June 2024. If you are in the process of buying multiple dwellings, or plan to do so imminently, then completing before that date could save you money. The timetable is tight, so this is something you should discuss with your solicitor at the earliest opportunity.
While it makes sense to benefit from multiple dwelling relief if possible, you should avoid rushing into a commitment just to beat the deadline. It is more important to ensure the transaction as a whole works for you, and that there are no other legal issues which could cause you problems in the future.
How we can help you
Our team of residential property lawyers have experience in all aspects of conveyancing, including property tax. Being proactive, where multiple dwelling relief applies, we will progress your purchase to give you the best chance of making a successful claim. However, we will never lose sight of the bigger picture.
We can also advise you if there are other ways of reducing the amount of stamp duty payable. For example, other reliefs may apply if you are buying six or more properties in a single transaction, or your purchase includes a mixture of residential and commercial use.
For further information, please contact Chloe Smart in the residential conveyancing team on 0333 023 2242 or email chloe@landsmiths.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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