Multiple Dwellings Relief to be abolished!
It has been announced by the government in the 2024 Spring Budget that Stamp Duty Land Tax (‘SDLT’) Multiple Dwellings Relief (‘MDR’) will be abolished from 1 June 2024.
What is Multiple Dwellings Relief (‘MDR’)?
MDR can apply to the purchase of two or more dwellings in one single transaction, or dwellings purchased in a series of linked transactions. MDR allows you to calculate the average value of the collective properties and applies the SDLT rates to this figure, rather than the total purchase price (provided that the main dwelling must be 2/3 or more of the total value). A typical example would be a property with separate “granny flat” annex. It is essential that the dwellings are independent of each other and self-contained with their own services.
Can I still use MDR if I qualify?
For those who have already exchanged contracts, the government has confirmed that property transactions with contracts that were exchanged ‘on or before 6 March 2024’ will continue to benefit from the relief regardless of when they complete.
If you have not yet exchanged, there is still a window of opportunity, purchases eligible for MDR will still benefit from the relief if they exchange and complete prior to 1 June 2024. Please consult with your solicitor who can advise you.
Why is the government scrapping MDR?
The relief was introduced in 2011 to reduce a potential barrier to investment in residential property and promote private rented sector housing supply. The government’s justification behind this is the lack of evidence that MDR was promoting investment in the private rented sector and therefore had minimal positive impact on the overall housing supply. The government has also said it had seen a rise in ‘incorrect and abusive claims’, which is supported by the many MDR cases going to the tax tribunal in the last few years. Further, the disproportional cost of administering what are generally bespoke applications may have contributed to this decision.
HMRC released a consultation which concluded in February 2022 on measures to improve the operation of SDLT to ensure fairer outcomes and reduce the scope for incorrect claims and abuse of the rules for mixed property transactions and MDR. This suggested that changes were coming to the way that reliefs worked, but the Autumn Budget 2023 was silent on MDR and mixed use SDLT reliefs.
What does this mean for the property market?
This change will not impact individuals purchasing a single dwelling. It will only increase the SDLT payable by individuals purchasing 2 or more dwellings in a single or linked transactions and may impact affordability for some households purchasing multiple dwellings. However, given the evaluation found that only 17% of private individuals claiming MDR said they were aware of MDR before purchase and that most individuals claiming MDR are for higher value purchases, it is not expected that this change will impact family formation, stability or breakdown.
The governments evaluation report notes that most private individuals (61%) said that the availability of MDR had no influence over their decision to buy multiple dwellings whereas for businesses, 60% said that the availability of the relief had at least some influence on their decision to purchase dwellings. Businesses such as landlords purchasing a single buy-to-let property will not be impacted by this measure. Only businesses purchasing multiple dwellings in a single or linked transactions will be impacted.
However, many in the property sector will tell you that MDR has been a significant factor for purchasers, particularly so for developers and investors (although it is noted that those purchasing 6 or more dwellings may still be eligible to pay the lower non-residential rates of SDLT).
James Chisholm is a Partner and Head of Real Estate at Lichfield based law firm, Keelys LLP.