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Property Tax Bite – Multiple Dwellings Relief abolished – but better news on “mixed” purchases

The Budget on 6 March contained one significant SDLT announcement which had not been seen coming, the abolition of multiple dwellings relief (“MDR”).

MDR was introduced to the SDLT regime in 2011 and provides relief for purchases of, as the name suggests, multiple dwellings acquired in, or as part of, the same transaction (or across linked transactions) and essentially means SDLT is calculated on the average chargeable consideration for each dwelling, then multiplied by the number of dwellings. This allows each dwelling to benefit from the progressive SDLT rates that apply to different slices of consideration.

MDR will be abolished from 1 June 2024, with the government citing that the purpose of the relief was to support investment in the private rented sector and that “an external evaluation found no strong evidence that it had done so and that it was being regularly abused”. It is certainly true that there have been many cases in the tribunals (and doubtless many which have not made it to tribunal) where such claims for relief have been challenged, and generally these are disputes over what constitutes a separate dwelling (the classic example being where a house is purchased that includes an annexe or studio which, on the face of it, can be argued to have all the fundamental features of a dwelling in its own right). The government clearly considers such cases not to be the intended beneficiaries of MDR. However, for many making use of the relief, such as real estate investment trusts, which do invest in residential property and validly use the relief to reduce the overall cost of investment, this will (subject to the potential saving grace of the “six pack” rule noted below) be very unwelcome.

In that context, it is surprising that the decision has been taken to abolish the relief completely, in particular in the knowledge that there was a consultation on MDR in late 2021 which put forward various options for improving the targeting of the relief and clamping down on perceived avoidance, none of which was total abolition of the relief.

Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to be eligible for the relief regardless of when they complete (so long as there is no variation of the contract, which will need to be watched carefully) as will any other purchases that are completed before 1 June 2024.

As this is purely an SDLT announcement it will, of course, for the moment at least, only apply in England and Northern Ireland due to Wales and Scotland having their own real estate transaction tax regimes.

Alongside the announcement on MDR, the government confirmed that it has no current intention to amend the SDLT rules on mixed-use transactions. So, it will remain the case that where any part of the property acquired is non-residential, the non-residential or mixed SDLT rates will apply to the whole of the purchase, which can often give a materially lower SDLT liability than applying residential rates. Also it is important to note that the “six pack” rule will seemingly continue, so even if a purchase is exclusively residential, it may be subject to the non-residential SDLT rates if it includes six or more dwellings (which may now present an increased risk of abuse in this area, along with an increased focus by taxpayers on trying to argue that at least part of the property acquired is non-residential, which is another hot topic area in terms of HMRC challenges to SDLT returns, evidenced by a number of tribunal decisions).

You should therefore be aware of the imminent expiry of this relief. If you have transactions that may complete before 1 June and where MDR could be relevant, please feel free to contact us for advice. MDR has been a very hot topic for HMRC in SDLT challenges, and it is likely that HMRC will continue to scrutinise and challenge claims made up to the deadline.