Overview

Nick Garner Comments.

With the abolition of Multiple Dwellings Relief (MDR) from 1 June 2024, as announced by the UK government, the landscape of purchasing multiple dwellings in a single transaction will change significantly. MDR previously allowed buyers purchasing more than one dwelling in a single transaction or a series of linked transactions to benefit from a relief that could reduce the overall Stamp Duty Land Tax (SDLT) payable.

The relief effectively allowed the tax calculation to be based on the average value of the dwellings purchased, rather than on the total transaction value, potentially lowering the SDLT rate applied to the transaction.

Once MDR is abolished, if you buy two or more properties in a linked transaction, the whole transaction value will be subject to SDLT without the benefit of averaging the property values for tax purposes.

This means that the SDLT calculation will consider the aggregate value of all properties involved in the transaction, potentially placing the transaction in a higher SDLT bracket and increasing the overall tax payable.

However, it’s important to note that transactions with contracts exchanged on or before 6 March 2024 will still be eligible for MDR, regardless of when they complete, as will any purchases completed before 1 June 2024. This provides a grace period for transactions that are already underway but may not complete before the abolition date.

The government’s decision to abolish MDR follows an external evaluation that found insufficient evidence that the relief was achieving its intended objective of supporting investment in the private rented sector.

While this change may have implications for buyers planning bulk purchases of residential properties, including potential impacts on investment strategies and the cost of acquisitions, the government has indicated its intent to engage with the agricultural industry and potentially other sectors to assess any sector-specific impacts that need further consideration.

Exact text from the 2024 spring budget

3.30 From 1 June 2024, the government is abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. This follows an external evaluation which showed no strong evidence the relief is meeting its original objectives of supporting investment in the private rented sector.

Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. The government will engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.

5.68 Stamp Duty Land Tax: Abolition of Multiple Dwellings Relief – From 1 June 2024, Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime in England and Northern Ireland, will be abolished.

Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. The government will engage with the agricultural industry to determine if there are any particular impacts for  the sector that should be considered further.

Example calculations and scenarios

Let’s start by outlining the process for calculating SDLT under both scenarios with and without Multiple Dwellings Relief (MDR), and then we’ll apply these calculations to the given scenarios. Note that all calculations include the 3% higher rate surcharge for additional properties.

General Calculation Process:

• Without MDR: Calculate SDLT based on the total value of the property or properties, applying the respective rates to each portion of the property value.
• With MDR: Calculate SDLT based on the average value of dwellings, then multiply by the number of dwellings. Apply the respective rates to each portion of the average value, then total the tax from each dwelling.

Scenario One: Large House with Gate Lodge

Without MDR:

Total value: £2,000,000 (Main House) + £250,000 (Gate Lodge) = £2,250,000

1. £250,000 @ 0% = £0
2. £675,000 @ 5% = £33,750
3. £575,000 @ 10% = £57,500
4. £750,000 (£2,250,000 – £1,500,000) @ 12% = £90,000
5. Total SDLT = £0 + £33,750 + £57,500 + £90,000 = £181,250
6. Add 3% surcharge: £2,250,000 * 3% = £67,500
7. Total SDLT with surcharge = £181,250 + £67,500 = £248,750

With MDR:

Average value: £2,250,000 / 2 = £1,125,000

Repeat the calculation for a single dwelling valued at £1,125,000, then multiply by 2.

1. £250,000 @ 0% = £0
2. £675,000 @ 5% = £33,750
3. £200,000 (£1,125,000 – £925,000) @ 10% = £20,000
4. Total SDLT for one dwelling = £0 + £33,750 + £20,000 = £53,750
5. Total for both dwellings = £53,750 * 2 = £107,500
6. Add 3% surcharge: £1,125,000 * 3% = £33,750; for both dwellings = £33,750 * 2 = £67,500
7. Total SDLT with surcharge = £107,500 + £67,500 = £175,000

Scenario Two: Buy-to-Let Investor Purchases 4 Houses

Without MDR:

Total value: £190,000 + £180,000 + £320,000 + £110,000 = £800,000

1. £250,000 @ 0% = £0
2. £550,000 (£800,000 – £250,000) @ 5% = £27,500
3. Total SDLT = £27,500
4. Add 3% surcharge: £800,000 * 3% = £24,000
5. Total SDLT with surcharge = £27,500 + £24,000 = £51,500

With MDR:

Average value: £800,000 / 4 = £200,000

Repeat the calculation for a single dwelling valued at £200,000, then multiply by 4.

1. £200,000 @ 0% = £0 (within the first threshold)
2. Total SDLT for one dwelling = £0
3. Total for all dwellings = £0 (before surcharge)
4. Add 3% surcharge: £200,000 * 3% = £6,000; for all dwellings = £6,000 * 4 = £24,000
5. Total SDLT with surcharge for all dwellings = £24,000

Frequently asked questions

Frequently Asked Questions (FAQs) About the Abolition of Multiple Dwellings Relief (MDR)

Q: What is Multiple Dwellings Relief (MDR)?
A: MDR is a relief in Stamp Duty Land Tax (SDLT) for buyers purchasing two or more dwellings in a single transaction or linked transactions in England and Northern Ireland. It allows the tax to be calculated on the average value of the dwellings rather than their total value, potentially lowering the SDLT payable.

Q: When will MDR be abolished?
A: MDR will be abolished from 1 June 2024. Transactions with an effective date on or after this will not be eligible for the relief.

Q: Are there any exceptions for transactions in progress?
A: Yes, transactions where contracts were exchanged on or before 6 March 2024 will still be eligible for MDR, even if they complete after 1 June 2024, provided there is no variation of the contract post-6 March 2024. Contracts that substantially perform before 1 June 2024 are also eligible.

Q: Who is affected by the abolition of MDR?
A: The change primarily affects purchasers of residential properties in England and Northern Ireland who acquire more than one dwelling in a single or linked transactions. This includes private individuals, businesses, and landlords involved in bulk property purchases.

Q: Why is MDR being abolished?
A: An evaluation found that MDR does not significantly support its original objectives of promoting investment in residential property and the private rented sector (PRS). It was deemed not cost-effective in achieving these goals.

Q: What will be the impact on SDLT payable for multiple dwelling purchases?
A: Without MDR, purchasers buying multiple dwellings will have to pay SDLT based on the total value of the properties rather than the average value. This could result in higher SDLT charges for those transactions.

Q: How will this change affect businesses purchasing properties?
A: Businesses buying multiple residential properties will face higher SDLT costs. However, purchases of six or more dwellings or mixed-use properties will still qualify for non-residential rates of SDLT. One-off costs may include familiarizing with the new rules and potentially updating software or processes.

Q: Will the abolition of MDR impact the customer experience with HMRC?
A: The customer experience is expected to remain broadly the same. However, simplifying the SDLT rules by removing MDR could improve the experience by reducing the likelihood of incorrect claims and subsequent HMRC enquiries.

Q: What are the economic and equality impacts of abolishing MDR?
A: The abolition of MDR is not expected to have a significant macroeconomic impact. The measure could affect affordability for some households purchasing multiple dwellings but is unlikely to impact family dynamics or property ownership distribution among protected groups.

Q: How will HMRC monitor and evaluate the change?
A: The change will be monitored through information collected from land transaction returns and ongoing engagement with stakeholders. HMRC is also investing in IT system updates to support the change.

Conclusion

In conclusion, the abolition of Multiple Dwellings Relief (MDR) marks a significant shift in the UK’s approach to Stamp Duty Land Tax (SDLT) on bulk property purchases. Originally intended to stimulate investment in the private rented sector, MDR increasingly became a focal point for scrutiny due to its susceptibility to abuse, evidenced by numerous cases brought before the First Tier Tax Tribunal.

The government’s decision to discontinue MDR from June 1, 2024, after a detailed evaluation revealed it fell short of its objectives, reflects a broader strategy to close loopholes in tax legislation.

Further reading

gov.uk/government/publications/stamp-duty-land-tax-abolition-of-multiple-dwellings-relief-from-1-june-2024/stamp-duty-land-tax-abolition-of-multiple-dwellings-relief-from-1-june-2024
https://www.gov.uk/government/consultations/stamp-duty-land-tax-mixed-property-purchases-and-multiple-dwellings-relief/outcome/stamp-duty-land-tax-mixed-property-purchases-and-multiple-dwellings-relief-summary-of-responses–3