In such transactions, the buyer has a choice as to whether to pay LBTT or SDLT at the commercial rates or to claim multiple dwellings relief ("MDR"). If MDR is claimed then tax is charged on the basis of the average price per dwelling, multiplied by the number of dwellings, subject to a minimum charge.

For the most part MDR will operate in the same way for both LBTT and SDLT but there are some key differences - a few of which I cover in this article.

3% extra tax on purchase of additional dwellings

Before I discuss these differences I need to mention the change to both LBTT and SDLT that was made on 1 April 2016 - to add, in certain circumstances, an extra 3% to the LBTT or SDLT charge for the purchase of dwellings for a price of £40,000 or more. In Scotland this extra charge is called the Additional Dwellings Supplement (or "ADS"). In the rest of the UK it is called the higher charge ("SDLT Higher Charge").

The rules are quite involved, but the basic principles are that:

• a buyer who is an individual will incur the applicable charge ie ADS or the SDLT Higher Charge if, at the end of the day of the purchase of a dwelling, he still owns another dwelling and he has not replaced his main residence or
• a buyer who is not an individual will incur the charge on the purchase of any dwelling - even if that buyer does not own any other dwellings.

For the SDLT Higher Charge only, the extra 3% is not applied if:

• the interest acquired is subject to a lease with an unexpired term of more than 21 years or
• the acquisition is already subject to the 15% charge on high-value (£500,000 +) residential purchases by non-natural persons - the detail on which I'm not covering today.

Now back to some differences between the operation of MDR under LBTT and SDLT.

Minimum charge

For LBTT the minimum charge under an MDR claim is 25% of the tax that would have been due if no MDR claim had been made. For SDLT the relevant minimum was 1% before the introduction of the the SDLT Higher Charge - but now that minimum charge is 3% (if the average house price is £40,000 or more). Let's look at an example. Six flats are bought in a single transaction for the total price of £600,000. The average price per flat is therefore £100,000.

This average price is below the residential nil rate threshold for both LBTT (which is £145,000) and SDLT (which is £125,000). 

For a purchase in England, Wales or Northern Ireland which is subject to the SDLT Higher Charge, there is effectively no nil rate threshold, as 3% is charged for any part of the averaged price up to £125,000. For a purchase in Scotland, the ADS is not applied to the MDR calculation at all - provided that relief from ADS is claimed - so for Scotland there is still a £145,000 nil rate band.

For SDLT the MDR calculation is 6 x (3% of £100,000 ie £3,000) = £18,000. The SDLT charge at commercial rates would be £19,500. So in that example claiming MDR would save the buyer £1,500.

For LBTT the MDR calculation (provided that relief from ADS is claimed) would be 6 x (0% of £100,000 ie £0) = Nil, so that the minimum would apply. The LBTT MDR minimum is 25% of the tax that would have applied had MDR not been claimed - so 25% of the charge at commercial rates. That would be 25% of £17,250 ie £4,312.

In this example the LBTT charge is significantly lower than the SDLT charge - £4,312 LBTT instead of £18,000 SDLT.

MDR and leases

There are other differences relative to leases.

For LBTT:

• MDR is not available if the interest being acquired is leasehold - even if it is essentially equivalent to ownership, e.g. the buyer is being granted, or is taking an assignation of, the tenant's interest in a 999 year lease of a block of flats.
• MDR is available if the interest being acquired is subject to a lease, regardless of its duration - so, e,g. MDR could be claimed by someone buying a block of flats even if some or all of the flats were rented out to occupiers or if the whole block was subject to a long lease.

For SDLT:

• MDR is available for the acquisition of leasehold titles if they are for more than 21 years, provided that there are no under leases for more than 21 years - so e.g MDR would be available for the grant of, or that taking of an assignment of, a 999 year lease of a block of flat, where the flats were not rented out or were let out on leases for 21 years or less.
• MDR is not available for the purchase of any interest (freehold or leasehold) that itself is subject to a lease or leases for more than 21 years.