How multi-unit relief could save you thousands of dollars in stamp duty
If you buy a property with an annex, you could potentially make huge savings on stamp duty thanks to the unrecognized Multiple Dwellings Relief (MDR).
What is the multiple dwelling relief?
The MDR was introduced in 2011 to encourage investors to buy multiple properties for their portfolio, but it can also be claimed on annexes located within the grounds of a property. The Stamp Duty Property Tax (SDLT) calculation increases with the value of a property but, if the property you are purchasing has a stand-alone, separate, or integrated annex, you may be able to treat it as a second property. , thus reducing SDLT.
For example, if you buy a house for £ 1million ($ 1.4million), the standard SDLT owed is £ 61,250. If that same property has an annex and qualifies for the MDR, the tax is split equally between the two properties, regardless of their size, at £ 500,000 each. The stamp duty due would be twice £ 22,500, or £ 45,000, a saving of £ 16,250 compared to if it were a single dwelling.
Watch: How does the 95% mortgage program work?
Which properties are eligible for MDR?
Much of the confusion around MDR comes from clarifying what properties actually qualify. The official definition is that a building or part of a building counts as a dwelling if it is “used or can be used as a single dwelling” on the date of the transaction.
In reality, the definition is more nuanced and HMRC emphasizes several factors. These include individual municipal tax bills, independent security and access, separate utilities, and separate registration with the post office.
It also examines whether the property was marketed as having a stand-alone annex and whether someone could live there independently. Each transaction is studied on a case-by-case basis but even if your annex is integrated into the main house it may be eligible.
Read more: Pensions: £ 400million unclaimed as thousands ignore little-known allowance
“The boards are very gray with extremely limited information; even the available information is so difficult to find and interpret that it creates an advisory void and it is estimated that one in four transactions is overpaying, ”explains Shane Mockler, Head of New SDLT Activities at Cap Ex Associates Tax Ltd.
How to claim the MDR
If you are eligible for MDR and your transaction has not been finalized, speak to your carrier about what is required. If you finished less than 12 months and 14 days ago, you can make amends with HMRC.
“To collect the funds, you will need the signed contract, the signed TR1 land transfer, the SDLT1 form and the SDLT5 certificate. All of these documents can be requested from your carrier, ”Shane explains.
Read more: Compensation Mortgages: What Are They And Should You Get One?
Can you get a backdated MDR?
If you finished more than a year ago, you may still be able to get a refund, but it will be more complicated and you will need to speak to a property tax advisor. “We can make claims older than that to HMRC – up to 4 years – but it becomes at the discretion of HMRC,” Shane explains.
You must make sure that you are sure of your eligibility before submitting an application. HMRC has been given new powers to investigate MDR and there is now a three-year payback period, during which relief can be withdrawn if any of the conditions are not met. If it turns out that a mistake has been made, it can be costly. Claiming the MDR shouldn’t affect anything when it comes to selling your property – like capital gains tax – but it’s always best to talk to your accountant as every case is different.
Watch: How much money do I need to buy a house?