Multiple Dwellings Relief - a problem for tax advisers?

Recent cases before the tax tribunal have highlighted an issue for tax advisers involved with multiple dwellings relief – is the issue of multiple dwellings relief about to impact professionals outside of the legal industry?

What is Multiple Dwellings Relief and how is it applied to Stamp Duty Land Tax? 

 Multiple dwellings relief (MDR) is a form of relief available from Stamp Duty Land Tax (SDLT) where a property purchase involves the transfer of 2 or more dwellings within a single transaction, or within linked transactions. The standard rate of SDLT varies according to the property value with the maximum standard rate of SDLT is 12% and applies to properties valued in excess of £1,500,001.  MDR therefore provides a generous reduction in SDLT as it reduces rates to a minimum of 1% when correctly applied. When applied, MDR causes the total SDLT due on the transaction to be brought into broad alignment with the total amount that would have been due had the individual properties been purchased from separate vendors through separate transactions.

Given the significant savings produced by MDR, there is little wonder that advisors involved in property transactions have highlighted this potential relief to prospective purchasers (arguing an adviser would be at risk for not highlighting MDR given the savings involved).

In the 2024 Spring Budget, the government abolished MDR with effect from 1 June 2024 – and so this should be a historic issue. However, the impact of MDR continues and recent decisions may see its impact go beyond legal advisers (where we have seen the most complaints and claims).

Recent Developments

MDR is arguably the next in line of a long list of "schemes" intended to minimise SDLT. We have seen the use of sub-sales to minimise SDLT with these schemes largely shut down because of an anti-avoidance measure (section 75A introduced in late 2006 and spotlight notice 10 in August 2010).  We also saw in January 2023 an opinion from the general anti-avoidance rules advisory panel in relation to the sale and purchase of a residential property involving a sub-sale and an annuity. 

We have now seen a number of recent tribunal decisions that may lead to questions being raised of tax advisers where historic attempts to minimise SDLT failed.

• Ladson Preston Limited, AKA Developments Greenview Limited v HMRC [2021] TC08197: Planning permission not sufficient to secure Multiple Dwellings Relief

The Upper Tribunal (UT) determined that planning permission was not capable of satisfying the requirement of being "in the process of construction" in order to qualify MDR. In this case, planning permission had been granted prior to the effective date of the transaction (EDT) for the construction of multiple dwellings, but construction had not yet commenced. The property purchase subject to SDLT comprised of bare land which came with the benefit of planning permission for 218 flats and commercial space on the ground floor. The key point of dispute was whether planning permission was deemed the start of the construction process, i.e., can the 218 flats be held as being in the process of construction at the time of the EDT? In order for MDR to apply the property being transferred must comprise more than one dwelling.

The UT found that the requirements for MDR were not met.  Planning permission does not have a property title and is not a right held by one person (and therefore is not something that someone can own, sell, or transfer), planning permission could not form part of the process of construction. The UT also flagged that if planning permission were sufficient to grant MDR it may result in abuse as purchasers may submit planning permission for a potential site simply to benefit from MDR without any intention to proceed with the proposed construction.

• AKA Developments Greenview Limited's claim

The transfer comprised of commercial buildings which were to be demolished ahead of 9 dwellings being constructed on the land. In this instance, the activity which the taxpayers argued constituted a "commencement" of construction comprised of bore holes which had been dug prior to the EDT, and works that were performed on the day to remove the existing buildings. The taxpayers argued that the dwellings were under construction on the EDT as the EDT is the day of completion, not the time of completion.

The UT found that works undertaken after the transaction is completed cannot have formed part of the subject matter of the transaction, even if performed on the very day of the EDT. Subsequently, the appeal was dismissed on the basis that the subject matter did not include an interest in more than one dwelling and so MDR was not available.

• Landmaster Investment Limited & Anor v HMRC [2023] TC08919: Apartment reservation agreements were not options or rights of pre-emption and subsequently does not attract non-residential SDLT rates

The taxpayer had reserved a residential apartment in return for paying a reservation fee of 0.2% of the purchase price. The taxpayer then acquired a 999-year lease of the apartment and filed a land transaction return reflecting the SDLT residential rates. The taxpayer subsequently amended the return in an attempt to reclassify the transaction as chargeable at the non-residential rates. HMRC disagreed – in their view the original SDLT return was correct. 

As the first transaction was non-residential and the second was residential, the taxpayers argued this constituted a mixed-use transaction and subsequently the non-residential rates applied. 

The UTT found that the reservation agreements were not options or rights of pre-emption. The agreements did not impose legal obligations on the seller to sell the apartment to the prospective purchaser, only to refrain from negotiating with third parties during the reservation period. The agreements did not create an interest, right, or power in or over land or give rise to any obligation, restriction or condition affecting the value of any such interest, right or power. The purchasers' rights under the reservation agreements were not chargeable interests, subsequently, these agreements were not deemed land transactions.  SDLT was payable at residential rates.

What does it mean for advisers?

 Within the lawyers' space, failed applications for MDR or clawback claims have led to claims against legal advisers and conveyancer. Such claims appeared to increase in frequency in the immediate wake of the Finance Act 2021 (where HMRC were enabled to issue information requests) with the majority of tribunal decisions finding in HMRC's favour.

In respect of tax advisers, the position is much the same as that of for lawyers and conveyancers: it is crucial for advisors to be aware of the requirements of any relief they intend to seek for their clients and ensure that any application is only made after careful consideration of the facts of the matter at hand. Speculative or optimistic applications seeking SDLT relief (including historically for MDR) will most likely be rejected by HMRC either at the point of application, or within the 4–6-year period following the application. 

A lot has gone on in the SDLT space as property prices continued to increase and those involved sought to minimise their SDLT exposure – as with other areas – HMRC has cracked down.  Recent tribunal decisions should also lead tax advisers to reconsider their approach and also to consider what steps to take with impacted clients who may now face a HMRC inquiry/assessment.