The ability to apply for Multiple Dwellings Relief (MDR) is essential to the delivery of vitally needed housing by the Build to Rent (BTR) sector and as such the abolition of MDR in yesterday's Budget is therefore disappointing. 

What may be the possible thinking behind the change?

In December 2023, GOV.UK released a relatively unnoticed update in which they indicated the previously established statistics for MDR had been withdrawn and the methodology used to review was being revised.

"This review identified [two] errors which have been corrected. We now provide revised estimates for the financial year 2019 to 2020 and the [three] preceding years, and new estimates for the financial years 2020 to 2021 and 2021 to 2022".

The consequence of the correction is that the average annual MDR total claimed by way of Stamp Duty Land Tax (SDLT) savings rose from circa £50 million to £245 million (taking the four years up to financial year 2019-2020).

It is reasonable to suspect that substantial increase was influential in yesterday's announcement.

However, in its own report released on 6 March 2024, the Government conducted an assessment to develop a greater understanding of the use and effects of the relief and assess the purposes for which it was being applied – and whether such uses were consistent with the purposes for which MDR was intended. The conclusion was:

"These findings should not be considered conclusive evidence of MDR failing to reach its objectives of reducing barriers for purchasing residential property with a view to supporting supply in the private rented sector." 

Bearing in mind how MDR has supported the delivery of the BTR, should a decision to abolish MDR have been made before a full understanding of these figures was obtained? 

Real life impact of a tax change

It is recognised that BTR is an essential way of delivering vitally needed housing with £4.5bn invested in the 2023 (the second highest year on record) (source: Savills), so the impact on the sector as a consequence of this additional pressure on viability is likely to hit hard with as a consequence, even fewer homes delivered to the UK.

Interestingly – although there has not been much press comment around this - Purpose Built Student Accommodation may be equally impacted.

How is SDLT calculated on residential property?

Stamp Duty Land Tax (SDLT) is payable on the purchase of residential property, with the amount payable depending on the price paid. At £250,000 or less, no SDLT is payable, but where it exceeds £1,500,000 SDLT is payable (in the case of the excess) at the rate of 12%. If the purchaser is a company, there is a 3% surcharge. There is also a further 2% surcharge if the purchaser is treated as non-resident for SDLT purposes.

The SDLT payable when purchasing residential property is therefore significant. This is particularly the case where more than one property is being purchased at the same time because SDLT is payable by reference to the total consideration for all the properties. 

However, the amount of SDLT due may be reduced in the following two cases:

Six or more residential properties acquired at the same time

The transaction is treated as being the purchase of non-residential property. SDLT is payable at commercial rates, which is effectively capped at 5%.

MDR claimed

The SDLT is payable by reference to the average price of the properties multiplied by the number of properties (and subject to a minimum of 1% of the aggregate consideration).

Practical example

If a purchaser was purchasing 100 residential properties for £300,000 each in one transaction (i.e. with the total purchase price being £30m), a claim for MDR would reduce the SDLT liability from £1,489,500 to £1,150,000. If, instead, the purchaser has purchased 99 residential properties for £300,000 each and a commercial unit of £300,000 in one transaction, a claim for MDR would further reduce the SDLT liability to £311,895.

Although not the only option, MDR is therefore a valuable tool for BTR schemes which typically comprise of mixed use developments or involve a number of units (more than 5) being acquired.

Transitional arrangements – caution

While MDR will remain available for transactions with an effective date on or after 1 June 2024 if contracts are exchanged on or before 6 March 2024, this is only subject to such contracts not being varied after 6 March 2024.