When a taxpayer purchases a property that consists of more than one dwelling they may claim MDR to reduce the amount of SDLT payable on the purchase. MDR works by allowing the purchaser to calculate SDLT based on the average consideration paid for each property. They can then apply the lower rate of SDLT (0% + 3% surcharge if another residence is already owned).

Example

A taxpayer purchases a town house that has been split into five individual flats, or dwellings. The total consideration is £925,000.

With MDR applied, SDLT will be calculated for each dwelling as £925,000/5 = £185,000 x (0% + 3%) so £5,550 per dwelling and a total of £5,550 x 5 = £27,750 is due. 

Without MDR, the SDLT will be calculated on the total consideration as follows:

First £250,000 @ (0% + 3%) = £7,500

Remaining £675,000 @ (5% + 3%) = £54,000

Total SDLT = £61,500.

In this example, MDR results in a tax saving of £33,750.

Unfortunately the relief, while beneficial to those taxpayers genuinely purchasing multiple dwellings, has been subject to abuse by individuals hoping to gain an undue tax advantage. The government ran a consultation in 2021 on ways to reform the relief, which included potential amendments such as only making MDR available where three or more dwellings were purchased in a single transaction.

However, in a somewhat unexpected move, the Chancellor announced in the Budget that MDR will be abolished for transactions which complete, or which substantially perform, on or after 1 June 2024. Purchasers who exchanged contracts on or before 6 March 2024 remain eligible for MDR regardless of when the transaction completes, provided there is no variation of the contract after that date.

If you are purchasing a property that may have qualified for MDR, contact us to discuss your options.