Abolition of Multiple Dwellings Relief - An Example Situation.
A client has initiated two separate purchase contracts for residential properties from the same vendor, totaling four properties, with each contract covering the acquisition of two properties. Both contracts are recognised as "linked transactions" for Stamp Duty Land Tax (SDLT) purposes due to the connection between the buyer and seller. The first contract was executed before Budget Day (6 March 2024), while the second was entered into thereafter.
The completion of the first contract is scheduled for this month (April 2024), while the second contract is set to complete after 1 June 2024, coinciding with the withdrawal of Multiple Dwellings Relief (MDR). No "substantial performance" is expected to occur regarding any of the properties before 1 June.
It is understood that the first two properties acquired are likely to qualify for MDR under the existing rules, whereas the latter two acquisitions will not qualify due to their completion post 1 June.
The withdrawal of MDR for transactions with an "effective date" of 1 June 2024 or later was announced in Budget 2024. The "effective date" of an SDLT transaction is defined as the earlier of completion or "substantial performance," which includes either the payment of a substantial amount of the consideration or taking possession of the subject matter of the transaction.
The legislation distinguishes between "pre-commencement transactions" (those with an effective date before 1 June 2024, qualifying for MDR under existing rules) and "post-commencement transactions" (those with an effective date on or after 1 June 2024, no longer qualifying for the relief).
Linked transactions are addressed in Paragraph 6, stating that MDR remains available only for pre-completion transactions. Paragraph 7 clarifies that pre-commencement transactions, still eligible for MDR, are not linked to post-commencement transactions that do not qualify for MDR. Thus, MDR may still be claimed under the existing rules for properties acquired under "pre-completion" transactions in cases involving linked transactions.
In the client's scenario, MDR is available for the two properties acquired under the initial "pre-completion" transaction, which are not linked with the two "post-acquisition" properties ineligible for MDR.
However, if substantial performance were to occur for the second contract before 1 June 2024, then this contract would also be excluded from the new rules, allowing MDR for those two properties. This would link them with the earlier transaction, making the relief available for all four properties. Genuine "substantial performance" is crucial, as HMRC may scrutinise the arrangements, particularly given the connected status of the parties involved.
For further reference, please see the HMRC links regarding SDLT provisions:
- SDLTM07950: Payment of Consideration
- SDLTM07900: Taking Possession
- SDLTM30100: Linked Transactions