The Chancellor has announced the abolition of Multiple Dwellings Relief (MDR) from Stamp Duty Land Tax (SDLT) on residential property purchases in England and Northern Ireland, effective from June 1, 2024. MDR, aimed at reducing tax rates for bulk residential property purchases, will be scrapped due to its significant annual cost to the Treasury, estimated at £700 million, and its failure to fulfill its original purpose of supporting investment in the private rented sector (PRS).
A consultation in November 2021 explored options for refining MDR to prevent abuse and ensure fairness. However, in February 2023, an external evaluation commissioned by HMRC found insufficient evidence that MDR achieved its objectives.
The impact on institutional investors in pure PRS, often overseas-owned, is expected to be minimal due to existing surcharges, which prevent SDLT rates from falling below five percent. However, investors in PRS schemes with commercial property components will lose the reduced tax rates previously available under MDR, as HMRC acknowledged a drafting error rather than a deliberate policy decision exempting them from surcharges.
Investors in purpose-built student accommodation will face increased SDLT costs, potentially rising from one percent to five percent, as surcharges do not apply to this asset class. Property valuations in all affected categories are likely to fluctuate.
For smaller SDLT resident investors in PRS purchasing fewer than six units in a single transaction, the loss of MDR will significantly raise investment costs, potentially subjecting them to SDLT rates of up to 15 percent. Similarly, individuals purchasing homes with ancillary dwellings will experience increased tax costs, although MDR was not initially intended for such transactions and HMRC has expressed concerns about its misuse in this context.
The Treasury plans to engage with the agricultural industry to assess the impact of MDR abolition on farming property purchases.
Transitional rules will preserve MDR for transactions where contracts were exchanged by Spring Budget Day (March 6, 2024) and not subsequently amended or assigned.
Additionally, the consultation discussed the future of rules for mixed-use property purchases, with HMRC confirming no proposed changes. Such purchases will continue to be subject to non-residential SDLT rates.