A Change in the Air: The Abolition of Multiple Dwellings Relief

Home ownership is often hailed as the pinnacle of personal finance management. But economical hurdles often stand between prospective homeowners and their dream properties. That's where reliefs like the Multiple Dwellings Relief (MDR) come in. However, starting from 1st June 2024, the MDR will no longer be available, as per HMRC's recent evaluation and announcement.

MDR, a relief in the Stamp Duty Land Tax (SDLT) scheme, has been an instrumental tool for home buyers and real estate investors.

It was particularly beneficial when purchasing two or more residential properties in the same or a linked transaction, such as an entire block of flats. It reduced the SDLT, aligning it with what would have been payable if the properties were purchased individually from different vendors.

Introduced in 2011, the primary aim of the MDR was to stimulate investment in residential properties and boost the supply of housing in the private rented sector. However, potential misuse of the rules led HMRC to consider reforming the relief.

This consultation, alongside an external evaluation, showed no strong evidence that MDR was achieving its original objectives. As a result, the UK government has decided to abolish MDR for transactions effective from 1 June 2024 as stated by the chancellor in the Spring Budget on 6 March 2024. Note, contracts exchanged before 6 March 2024 will still be eligible for the relief, provided there is no contract variation.

This shock decision comes after HMRC's consideration to reform, rather than abolish, the MDR. One must wonder if ambiguous claims put forward by tax reclaim agencies, alongside a series of recent case laws, contributed to this surprise move.

Furthermore, it’s important to highlight that for many investors, the benefits of claiming MDR were already dwindling before this announcement. A combination of the 3% surcharge for higher-rate transactions and the 2% non-resident SDLT surcharge for non-resident purchasers deterred many from claiming the relief. With this change, any cost advantage UK buyers had over non-residents will be eliminated.

In certain cases where the 3% higher-rate surcharge didn’t apply, such as student accommodation and mixed-use properties, MDR provided significant benefits. These transactions will likely bear the brunt of this change.

In conclusion, the abolishment of MDR will significantly reshape the approach to residential property investment and home buying. It is therefore crucial for home buyers and investors to re-evaluate their buying strategies and make informed decisions. Ultimately, the challenge will be adjusting to these new changes and navigating the shifting sands of the property market landscape.