MDR Case Law & Abolition

What Was Multiple Dwellings Relief?

Multiple Dwellings Relief (MDR) was a stamp duty land tax (SDLT) relief introduced in 2011 to help landlords and property investors purchasing multiple residential dwellings in a single transaction. The relief allowed buyers to calculate SDLT based on the average price per dwelling rather than the total purchase price, potentially resulting in significant tax savings.

For example, if an investor purchased two flats for £500,000 total (£250,000 average), they could claim MDR and pay SDLT on £250,000 per dwelling instead of the full £500,000. This often resulted in substantial savings, particularly on higher-value transactions.

MDR could be claimed when purchasing two or more dwellings in a single transaction, or in linked transactions. Crucially, the relief applied even when purchasing a main residence with an annex, granny flat, or separate dwelling on the same property - an area that became heavily litigated.

Why MDR Was Abolished

The government abolished MDR effective 1 June 2024 due to widespread abuse and exploitation of the relief. HMRC and HM Treasury identified several key issues:

• •Annexe abuse: Homebuyers claiming small annexes, granny flats, or minor outbuildings as separate dwellings to reduce tax on expensive main residences
• •Artificial arrangements: Properties being structured or marketed specifically to qualify for MDR despite not genuinely consisting of multiple independent dwellings
• •Revenue loss: The relief cost the exchequer hundreds of millions in lost tax revenue, far exceeding original projections
• •Complexity and litigation: Numerous tribunal cases challenging HMRC decisions, creating uncertainty and administrative burden
• •Unfairness: Sophisticated buyers with tax advisers could exploit MDR while ordinary homebuyers paid full rates

The Spring Budget 2024 announced the abolition, with the measure taking effect from 1 June 2024. The government stated that MDR had moved beyond its original policy intent and was being used primarily for tax avoidance rather than supporting genuine multi-property investors.

Transitional Rules Explained

The government provided transitional protection for transactions already in progress when the abolition was announced. To qualify for transitional relief and still claim MDR, all of the following conditions must be met:

Transactions that exchanged on or before 6 March 2024 but completed after 1 June 2024 do NOT qualify for MDR. Similarly, transactions exchanged after 6 March 2024, regardless of completion date, cannot claim the relief.

This created a narrow window for buyers to complete purchases, and many rushed to complete before the 1 June deadline. Some transactions that would normally have taken longer were expedited to preserve MDR eligibility.

Key Tribunal Decisions on Annexes & Granny Flats

Prior to abolition, numerous cases reached the First-tier Tribunal (Tax) and Upper Tribunal concerning whether properties with annexes or granny flats qualified for MDR. These cases established important precedents that remain relevant for transitional claims and retrospective applications.

Fiander v HMRC [2019]

Landmark case where the Upper Tribunal found that a granny annexe connected to the main house by an internal door did NOT constitute a separate dwelling for MDR purposes. The tribunal emphasized that a dwelling must be capable of independent use and occupation.

Lewis v HMRC [2021]

The First-tier Tribunal denied MDR for a property with a self-contained flat, ruling that shared access and utilities meant the annexe was not sufficiently independent. This case highlighted the importance of separate access, meters, and council tax banding.

Hyman v HMRC [2022]

Successful MDR claim where the taxpayer demonstrated that the annexe had separate council tax banding, its own entrance, utilities, and could be (and previously had been) rented independently. The tribunal found this met the test of a separate dwelling.

Key Factors from Case Law

Tribunals consistently assessed the following when determining if an annexe qualified as a separate dwelling:

• •Independent access: Separate external entrance without needing to pass through main dwelling
• •Self-contained facilities: Own kitchen, bathroom, living space
• •Separate utilities: Independent electricity, gas, water meters
• •Council tax banding: Separate band or evidence it could be separately banded
• •Capability for independent occupation: Could be lived in or rented out separately
• •Actual use: Evidence of past or intended separate occupation

MDR Before & After Abolition

Impact on Property Investors & Developers

The abolition of MDR has significantly increased stamp duty costs for property investors and developers purchasing multiple dwellings. The impact varies depending on transaction structure and value.

Example: Two Flats at £250,000 Each

Strategic Considerations Post-Abolition

• •Separate purchases: Investors may structure deals as separate transactions instead of bulk purchases, though this brings its own complications with linked transaction rules
• •Mixed-use opportunities: Greater scrutiny of whether properties could qualify as mixed-use (commercial/residential) for lower rates
• •Corporate purchases: Increased interest in purchasing through companies, though this triggers higher SDLT rates and annual charges
• •Development strategy: Developers may adjust pricing and sales strategies to account for higher buyer costs
• •Market impact: Potential cooling effect on multi-dwelling investment market due to increased entry costs

Retrospective MDR Claims

Taxpayers who completed qualifying purchases before 1 June 2024 but did not claim MDR at the time may still be able to submit retrospective claims. HMRC allows amendments to SDLT returns within 12 months of the filing deadline (normally 14 days after completion).

However, retrospective claims for properties with annexes or granny flats are likely to face heightened HMRC scrutiny. Claimants must be prepared to demonstrate that their property genuinely met the tribunal-established tests for multiple dwellings, with evidence including separate council tax banding, independent utilities, separate access, and capability for independent occupation.

Given the complexity and risk of challenge, professional advice from a qualified tax adviser or solicitor is strongly recommended before submitting retrospective MDR claims.