Budget: SDLT Multiple Dwellings Relief abolished

The Chancellor has announced that Multiple Dwellings Relief (MDR) from Stamp Duty Land Tax (SDLT) on purchases of residential property in England and Northern Ireland will be abolished from 1 June 2024. MDR is a relief for bulk purchases of residential property which operates by reducing the effective rate of tax to the rate payable on a purchase of one unit for the average price paid for all the units. The reason given for the abolition of the relief is that MDR costs the Treasury £700 million a year in lost revenue and no longer fulfils its original objective of supporting investment in the private rented sector (PRS). 

In November 2021 a consultation was published which set out various options for refining MDR to make it fairer and prevent its abuse, but in February 2023 HMRC commissioned an external evaluation of the relief which concluded there was no strong evidence that MDR delivered on its objectives.

There should generally be little impact on institutional investors in pure PRS because these tend to be overseas owned and hence the two percent surcharge for SDLT non-residents and the three percent surcharge (that is intended to apply to all but individual homebuyers) has meant MDR should not in principle reduce the rate of SDLT below five percent.  

Investors in PRS schemes where there is some commercial property are impacted because they have been able to get reduced rates of tax under MDR. However, this was because HMRC conceded that the three percent surcharge did not apply in this situation, apparently due to a recognised drafting error rather than to fulfil a policy aim. 

There will also be an impact on investors in purpose-built student accommodation as the surcharges do not apply to this asset class, and so the SDLT costs of purchasing these assets will increase, potentially from one percent to five percent.  In each case, property valuations will be affected.

With regard to the smaller, SDLT resident investors in PRS purchasing fewer than six units in a single transaction, the loss of MDR will significantly increase the cost of their investment, as without MDR they face paying SDLT at up to 15 percent. It will also increase the tax costs for individuals buying homes with ancillary dwellings, however MDR was not originally intended to assist with these purchases and HMRC have been concerned with the relief being abused in this context. The Treasury has indicated that it will engage with the agricultural industry to assess the impact of the abolition of MDR on purchases of farming property.

There are transitional rules which preserve MDR for transactions where contracts have already been exchanged by the end of Spring Budget Day (6 March 2024) and will not subsequently be varied (or we assume assigned). 

The consultation referred to earlier in this article also considered the future of the rules for purchases of mixed-use property. HMRC have confirmed that no changes are proposed to be made here. These purchases will continue to be subject to the non-residential rates of SDLT.

For further information please contact:

• Simon Yeo
• Michael Hope