In a move set to take effect from June 1 this year, the Chancellor has scrapped the stamp duty land tax (SDLT) relief for multiple dwellings in England and Northern Ireland. The decision was revealed in last week’s Budget on March 6.
The relief from SDLT for multiple dwellings, known as MDR, will cease for transactions completing or substantially performing on or after the specified date. Nevertheless, those with contracts exchanged on or before the Budget date can still benefit from the relief, provided there are no variations to the contract after that point.
MDR was initially introduced to stimulate investment in residential property and boost the supply of the private rented sector. However, it has proven less effective than anticipated, as evidenced by an HMRC study indicating a lack of significant investor uptake coupled with instances of abuse.
The National Residential Landlords Association contends that the removal of this relief, though not widely utilized, may not destabilize the market. Nevertheless, it questions the Treasury’s decision to discard a fiscal tool that could enhance the cost-effectiveness of bringing a small number of properties to market amid the government’s stated goal of encouraging investment.
Tax specialists Kingsley Napley note that some businesses solely focus on amending SDLT returns to claim MDR. While acknowledging spurious claims, they highlight the labor-intensive nature of HMRC oversight. Moreover, the challenge of distinguishing between one dwelling and two has burdened caselaw, making it a cumbersome system for HMRC to police.
The firm suggests that abolishing the rule may impact a limited number of legitimate transactions, creating a disadvantage for investors buying multiple flats unless they acquire at least six, thereby qualifying for commercial SDLT rates. The rule change also indirectly closes the loophole that allowed purchasers of commercial property alongside multiple dwellings to benefit from low SDLT rates, sometimes as low as 1%.