The government confirmed in the Spring Budget 2024 that Multiple Dwellings Relief (MDR) would be abolished from Stamp Duty Land Tax (SDLT) rules. The changes will take effect from 1 June 2024.
This article will outline what MDR is, the rationale for its abolition, and the consequences for buyers and the wider property market.
What is MDR?
MDR is a relief that can be applied to property transactions which encompass two or more separate properties, or a single property that contains multiple dwellings. The relief works by applying the SDLT rate of the mean value of the properties which the acquisition consists of and then multiplying the sum by the number of dwellings purchased. When using MDR, there is a minimum rate of SDLT payable of 1%.
The relief was originally introduced to give buyers of multiple properties the benefit of paying SDLT in accordance with the lower rate. The government then hoped that the savings experienced by buyers would 'strengthen demand and reduce barriers to investment in residential property with the intention of promoting increased supply in the private rented sector'.
Abolition
HMRC commissioned a report in February 2023 which analysed how MDR was being used by developers throughout the UK and the consequences this relief had on the economics of the property sector. It determined that the availability of MDR had little impact on the decision of individuals to purchase multiple dwellings and a limited impact on the decision of businesses. With the government estimating that MDR results in a shortfall of an estimated £700 million per year in SDLT revenue, they ultimately took the decision that the relief was significant enough in stimulating investment into the property market to warrant the cost to the treasury. The government estimate that the change would generate between £70 million and £385 million a year for the British economy for five years.
The operative date for the cessation of MDR is those transactions with an effective date of on or after 1 June 2024. There is a transitional period for contracts exchanged after 6 March 2024 (the day of the budget announcement) and before 1 June 2024 resulting in the relief still being possible to apply.
Consequences for the property market
In the short term, it is likely that we see an increased push from buyers to complete before the 1 June 2024 cut-off so the relief can still be enjoyed. The long-term impacts are far harder to predict.
An aspect of the real estate market that is expected to be negatively impacted by the changes is the holiday rental landlords. The changes will result in a greater financial cost to move portfolios into limited companies. This can be viewed as a part of the government's wider policy goal of increasing the affordability of housing in UK holiday destinations.
It remains to be seen whether this change has any profound effect on investment into multiple dwellings properties and causes the production of affordable housing to stagnate. The government commissioned report suggested that MDR has a limited impact at best on decisions to purchase throughout the sector, with many being unaware of the availability of the relief to begin with.
An interesting aspect of the budget announcement was that non-residential rates (capped at 5%) will still be available for purchasers of six dwellings or more. Although this appears to be positive news from the perspective of large-scale developers, there will still be unwanted consequences. Multi-million-pound acquisitions of multiple dwellings could result in the purchaser being liable for a figure five times higher than if MDR had been operational. It is expected that this will most heavily impact the build-to-rent and student accommodation sector as well developers who purchase previously commercial units to convert into blocks of flats. When in the process of an acquisition, it is important to consult a specialist tax advisor who can run calculations of all the reliefs available and determine which one is the most advantageous or appropriate in your situation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
