Don’t forget about Multiple Dwellings Relief claw-back

Background

The issue

The valuable stamp duty land tax (SDLT) relief know as Multiple Dwellings Relief (MDR) is relatively well known about. It allows SDLT to be calculated based on the average value of properties which are acquired, multiplied by the number of properties. This will generally lead to a lower amount of SDLT being payable than if SDLT rates are simply applied to the total consideration. As well as applying to purchases of property portfolios, it can also apply where a main property has an annex or ‘granny flat’.

Example

On 1 July 2021 Roger bought a house with a separate granny flat for £1.5m.

His solicitors informed him that £91,250 of SDLT was due based on:

£250,000 @ 0%
£675,000 @ 5%
£575,000 @ 10%

This is what the HMRC calculator showed.

Fortunately, we got involved before the SDLT return went in and informed Roger that an MDR claim was appropriate, reducing the SDLT payable to £50,000 as set out below

Calculate SDLT on £750,000 (£1.5m/2):

£250,000 @ 0%
£500,000 @ 5%

= £25,000

Multiply this by 2 to get £50,000.

The claw-back

Our advice above would not have been complete without checking the claw-back position with Roger. If events of a certain type take place within three years of the acquisition, then the value of MDR can be negated, or clawed back. This basically works by the buyer having to calculate the SDLT hypothetically payable, if the event had taken place just before completion. Therefore, in the above example, if Roger were to knock down the annex within three years, then he would have an obligation to write to HMRC within 30 days of demolition to repay the £41,250 that he thought he had saved.

Forbes Dawson view

When we advise on MDR we always check that the claimants do not have any radical plans in relation to the property. Although the initial claim would be technically valid, any subsequent event could trigger an obligation to re-appraise the SDLT position. We are aware of some cold-call companies who will happily prepare reclaims (and take a commission) without properly exploring the prospect of a claw-back. Although in most cases a claw-back will not apply, it can be a nasty sting in the tail for buyers who learn about it after the event.

Not all events will be claw-back events. For example, if both houses are demolished then it would be reasonable to conclude that non-residential rates would have applied. In some cases that will result in an SDLT payable figure that is less than the figure with the MDR claim. In such cases no claw-back will be due.

 

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