Stamp Duty Change from Tomorrow

As a result of an announcement back in March, in the government’s final Budget, a major change to stamp duty comes into effect tomorrow, June 1.

It’s the abolition of Multiple Dwellings Relief (MDR) - until now it’s been a form of bulk purchase relief. 

MDR has been available to any purchaser buying two or more dwellings in a single transaction, or linked transactions, and allows the purchaser to calculate the tax based on the average value of the dwellings purchased as opposed to their aggregate value. It’s been used by portfolio landlords or those buying a property with a so-called granny annexe, for example.

It was introduced in 2011 to reduce a potential barrier to investment in residential property and to promote the private rental sector. 

However, a statement from HM Treasury says: “An external evaluation of MDR carried out as part of HMRC’s Tax Reliefs Evaluation Programme, found no strong evidence that the relief plays a significant role in supporting residential property investment, and that it has a minimal positive impact on overall housing supply or PRS supply. The evaluation has shown that MDR is not cost effective in meeting its original objectives. This measure therefore abolishes MDR from June 1 2024.”

The government consulted on the future of MDR at the end of 2023, with four options - none of them was to abolish the relief completely, but this was what Chancellor Jeremy Hunt announced in March.

The international legal practice Osborne Clarke says: “It may be that a combination of the raft of recent case law around the application of MDR and growing attention on tax reclaim agencies encouraging individuals to submit dubious claims for the relief, along with the government-commissioned external evaluation of MDR, led to its abolition.

“The benefit of claiming MDR had also already been eroded for certain investors prior to this announcement. The potential for one or both of the 3% surcharge for higher-rate transactions and the 2% non-resident SDLT surcharge for non-resident purchasers applying often meant that it was not beneficial to claim the relief, particularly if the purchaser was non-resident. The cost benefit that may have arisen for UK purchasers over non-residents will now be removed.

“However, for investors there were certain transactions where MDR could be claimed without the 3% higher-rate surcharge arising (for example, certain types of student accommodation and mixed-use properties) and these will be affected most by the change.”

David Hannah, group chairman of Cornerstone Tax, says: “MDR was first implemented as means to incentivise bulk purchases and provided developers with a suitable avenue for delivering low-cost homes. At a time when demand for affordable housing has skyrocketed, the government should look to create fresh incentives for developers, instead of abolishing old ones.

“The decision by the Chancellor to increase the tax that developers are forced to pay from 1-2% to 5% will have a seismic shift across Britain’s construction sector, leading to project abandonment and further increases to asking prices as supply continues to lag behind an overwhelming demand for affordable housing. Don’t be fooled, this is a stealth tax increase with a paper-thin justification laced over the top of it.

“The Chancellor could have used this opportunity to reform the private rental sector - measures including the abolition of the second home surcharge from rental sector investors and reinstating full relief on mortgage interest payments would have both reduced the costs of purchase, whilst also allowing landlords to freeze, or potentially cut, rents.”