Calculating multiple dwellings relief

MDR is calculated using residential LBTT rates and bands, in line with LBTT(S) A 2013 schedule 5 part 4

Overview of MDR Calculations

MDR is calculated by considering the tax attributable to each dwelling rather than treating the transaction as a single purchase. The calculation can reduce the tax due on the dwelling element of the transaction, but it does not reduce any ADS liability and cannot reduce the overall liability below the minimum prescribed amount.

There are two possible calculation approaches depending on whether ADS (Additional Dwelling Supplement) applies.

Where ADS applies, DT becomes ΣDT (the sum of the tax due in relation to each dwelling). ADS must be included in the calculation for any dwelling to which ADS applies. The amount payable is then calculated by comparing (ΣDT + RT) with (MPA + RT). MDR does not reduce the ADS amount.

• Total consideration: Total price paid for transaction
• Dwellings: Residential properties in the purchase
• Remaining property: Any non-residential part (e.g. shop, land)
• ND: Number of dwellings
• DT: tax on one “average” dwelling
• RT: Tax on any non-residential part
• ∑: sum of (total) for tax due when the ADS applies
• TT: Total tax without MDR
• MPA: Minimum tax rule 

Formulas used for calculating the MDR

Multiple Dwellings Relief calculation - no ADS payable

(DT x ND) + RT

• DT = tax due on one dwelling (based on the average consideration)
• ND = number of dwellings
• RT = tax due on any remaining (non-residential or mixed) property

Multiple Dwellings Relief calculation – with ADS payable

ΣDT + RT

• ΣDT = total tax due across all dwellings
  
  • This may differ per dwelling (e.g. where replacement of a main residence applies)
• RT = tax due on remaining property

MPA - Minimum prescribed amount

A minimum tax threshold applies.

MPA = 25% x (TT – RT) 

(i.e. 25% of the tax attributable to the dwellings)

• TT = total LBTT if MDR had not been claimed
• RT = tax due on remaining property

The minimum prescribed amount is provided for in The Land and Buildings Transaction Tax (Prescribed Proportions) (Scotland) Order 2014

Calculating remaining property tax (RT)

To calculate RT:

1. Calculate TT (total tax without MDR)
2. Determine the proportion of consideration attributable to remaining property:

Remaining consideration ÷ Total consideration

3. Multiply this proportion by TT:

RT = TT x proportion

Final tax payable

The amount of tax payable = the higher of:

• (DT x ND) + RT (where ADS applies this becomes ΣDT + RT)

or

• MPA + RT

MDR relief amount

MDR Relief = TT – Final LBTT payable

Step-by-step guidance

Calculating DT (tax due in relation to a dwelling)

1. Determine the total consideration attributable to dwellings (on a just and reasonable basis), including consideration from linked transactions where applicable.
2. Divide this amount by the total number of dwellings to obtain the average consideration per dwelling.
3. Calculate LBTT on that average amount using residential rates and bands, treating it as a standalone (non-linked) transaction.
4. The result is DT.
5. Multiply DT by the number of dwellings (ND) to calculate the tax attributable to the dwelling element of the transaction.

Note: Where ADS applies, ensure any relevant relief (e.g. 6+ dwellings treatment) is reflected.

If the ADS applies 

• MDR can still be claimed where ADS applies.
• If 6 or more dwellings are purchased in a single transaction and treated as non-residential, ADS does not apply.
• Where ADS applies to all dwellings, DT becomes ∑DT (sum of the tax due for each dwelling).

Calculating ∑DT

1. Calculate the average consideration per dwelling (as for DT).
2. Calculate LBTT on the average consideration using residential rates.
3. Add ADS to each applicable dwelling calculation.
4. Add together the tax due for all dwellings.

The result is ∑DT.

Note: If ADS applies to some dwellings but not others (for example, where a dwelling is a replacement main residence), calculate the tax due for each dwelling separately using the average consideration. Apply ADS only to the dwellings for which it is due and total the results to arrive at ∑DT.

Calculating TT (Total Tax)

TT is the total tax that would be due if MDR were not claimed.

• Calculate LBTT on the total consideration using the appropriate rates and bands.
• Where 6 or more dwellings are treated as non-residential, use non-residential rates.

Calculating RT (Tax Due on Remaining Property)

1. Calculate the tax due on the transaction before MDR.
2. Divide the consideration attributable to remaining property by the total chargeable consideration.
3. Multiply the result from step 1 by the proportion calculated in step 2.

The result is RT.

Calculating MPA (Minimum prescribed amount)

1. Calculate TT (the total tax due without MDR).
2. Calculate RT (the tax attributable to any remaining property).
3. Subtract RT from TT: TT − RT
4. Multiply the result by 25%: MPA = 25% × (TT − RT)

The result is MPA.

Note: Where there is no remaining property, RT will be nil and the calculation becomes:

MPA = 25% × TT

Determining the final LBTT payable 

Once the MDR calculation and the MPA calculation have been completed:

1. Calculate the MDR amount: 
   
   • (DT × ND) + RT, or
   • ΣDT + RT where ADS applies.
2. Calculate MPA + RT.
3. Compare the two results.
4. The final LBTT payable is the higher amount.

This ensures that the tax payable is not reduced below the minimum prescribed amount.

Calculating MDR relief

1. Calculate TT (the total tax due without MDR).
2. Calculate the Final LBTT Payable.
3. Subtract the Final LBTT Payable from TT: MDR Relief = TT − Final LBTT Payable

The result is the amount of MDR obtained.

Checking whether MDR is beneficial

1. Calculate TT (LBTT without MDR).
2. Calculate the Final LBTT Payable using the MDR rules.
3. Compare the two amounts.

If:

Final LBTT Payable is less than TT

MDR provides a tax saving.

If:

Final LBTT Payable is equal to or greater than TT

MDR does not provide a tax advantage.

Note: The amount of MDR available is affected by the minimum prescribed amount. In some cases, the MPA may significantly reduce the tax saving that would otherwise arise from MDR.

Key definitions

• Attributable consideration: must be apportioned on a just and reasonable basis
• Linked transaction: treated collectively when determining total consideration

Important notes

• MDR is optional – it is not always beneficial
• MDR may reduce the calculated tax to nil; however, the final liability will be subject to the minimum prescribed amount, which sets a lower limit
• Retain evidence and workings supporting the MDR calculation, as Revenue Scotland may request these
• Taxpayers should compare:
  
  • LBTT with MDR
  • LBTT without MDR

The LBTT Calculator can help with each step.

Examples