In a surprising move, the Chancellor has announced the abolition of Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief (MDR) from 1 June 2024. This decision, which is expected to raise between £70 million and £385 million a year for the next five financial years, has significant implications for property investors and the residential property market as a whole.

What is Multiple Dwellings Relief?

MDR was introduced in 2011 to encourage investment in residential property and boost the supply of housing in the private rental sector (PRS). Under this relief, purchasers buying two or more dwellings in a single transaction (or linked transactions) could pay SDLT based on the average chargeable consideration per dwelling rather than the total purchase price. This effectively allowed buyers to benefit from lower SDLT rate bands on a per-property basis, resulting in significant tax savings, especially for bulk purchases of low-value dwellings.

For example, an individual buying two separate dwellings for a total of £1 million would pay £55,000 in SDLT with MDR (assuming the 3% surcharge applies), compared to £71,250 without the relief. The savings are even more substantial for large-scale investments, such as the purchase of 100 flats for £20 million, where MDR would reduce the SDLT due from £989,500 to just £600,000.

Reasons for Abolishing MDR

The decision to abolish MDR follows a consultation by HMRC between November 2021 and February 2022. The consultation aimed to address concerns about the increasing volume of incorrect MDR claims made by individual purchasers, often encouraged by ‘tax reclaim agents’. Although HMRC has successfully challenged many of these claims in the tribunal, it considers it an inefficient use of its resources.

Additionally, HMRC commissioned an external evaluation (the MDR Study) to assess whether the relief was meeting its original objectives of supporting investment in residential property and the PRS. The study found no strong evidence that MDR was achieving these goals, leading to the policy decision to abolish the relief.

Impact on Property Purchasers

The abolition of MDR will affect a wide range of property transactions, from individual buyers purchasing a house with a separate cottage to large-scale PRS and build-to-rent (BTR) investors. While the MDR Study suggests that private individuals had little awareness or understanding of the relief, the impact on large-scale investors is likely to be more significant.

MDR has been a key factor in reducing transaction costs and increasing the profitability and viability of PRS and BTR investments, particularly for second-hand assets. The loss of this relief may jeopardise the viability of some projects and transactions, which seems at odds with the government’s commitment to addressing housing supply issues.

Moreover, for-profit social housing providers and local authorities buying residential portfolios without public subsidies will also be adversely affected by the change, as they will no longer be able to claim MDR.

Transitional Provisions and Effective Date

MDR will no longer be available for property transactions with an effective date on or after 1 June 2024. However, transitional provisions will allow the relief to continue for:

• Purchases under contracts exchanged on or before 6 March 2024, provided there are no contract variations after this date.
• Transactions that are ‘substantially performed’ (a technical SDLT concept) before 1 June 2024.

For linked transactions involving completions on either side of 1 June 2024, the pre-and post-change transactions will be treated as ‘unlinked’ for MDR purposes, meaning the relief will be unavailable or only partially available.

The complexity of applying these transitional provisions to real-world transactions means that purchasers about to exchange or complete deals involving MDR should seek professional advice as soon as possible.

Looking Ahead

The abolition of MDR is likely to have far-reaching consequences for the residential property market. While purchasers of six or more dwellings can still pay SDLT at the non-residential rates (around 5%), this will result in significantly higher tax costs compared to claiming MDR.

As SDLT is a transaction cost that affects pricing, vendors will also be impacted, and ongoing negotiations may need to be revisited to account for the change. In the longer term, we may see a shift towards more forward-funding transactions and acquisitions of bare sites to minimise SDLT liability, although this will not help with purchases of second-hand units.

Despite the MDR Study’s findings, the residential property sector is expected to put pressure on the government to reconsider this decision, particularly for purchases intended for business use. As the industry grapples with the implications of this announcement, seeking professional advice will be crucial in navigating the complexities of the changing SDLT landscape.