The UK’s booming build-to-rent (BTR) sector is set to lose a significant owner incentive. As part of his Spring Budget, the Chancellor of the Exchequer Jeremy Hunt announced plans to abolish Multiple Dwelling Relief (MDR) on Stamp Duty Land Tax (SDLT).
Since being introduced in 2011, MDR on stamp duty has given buy-to-rent landlords a significant incentive to purchase more than one property at a time. Instead of the total stamp duty values being calculated across all properties purchased, only the average is payable, with a floor of 1%. The relief has been available to both private and commercial landlords.
Despite being launched as a way to stimulate investment in the private rented sector, a recent report by HMRC found that there was little evidence to suggest MDR made any difference to buy-to-rent activity. The sector has certainly proven to be a bastion of resilience as the wider residential property market has stalled, experiencing 11% growth in the year to November 2023.
With an estimated cost of £700 million a year, it’s easy to understand why MDR was viewed as a prime target for the Treasury to claw back some badly needed tax revenue.
However, the news is likely to be received less warmly by a construction industry already feeling the full brunt of challenging economic headwinds.
Chilling effect
The UK Apartment Association (UKAA), a trade body for BTR developers, has suggested that the move could wipe between £400 and £800m off current valuations and will go on to affect forward funds and the ability of developers to compete for land long into the future.
The UKAA further pointed to HMRC’s own findings that 60% of BTR investors said MDR had at least some influence on their purchasing decisions. The fear is that its removal will have a tangible chilling effect.
In practice, the abolition of MDR is likely to have the biggest impact on smaller investors and prospective PSR landlords, as well as those investing in mixed-use developments and special use cases like student accommodation.
As SDLT is only chargeable on properties with a value of £250,000 or above, multiple purchases below this value have had the biggest benefit from MDR because it is not offset by the 3% SDLT surcharge on buy-to-let purchases. Similarly, dwellings in mixed use developments and student accommodation are exempt from the surcharge.
Investors purchasing more than six properties at a time have also had the choice of either making use of MDR or paying SDLT at the lower non-residential rate, picking whichever option works out to be the most beneficial in each transaction. This option has now been removed, and all linked purchases of six or more properties will now be treated as commercial transactions.
The abolition of MDR will apply to all transactions which complete or substantially perform on or after 1st June 2024. MDR can still be claimed on purchases if contracts were exchanged before the 6th March announcement, as long as there is no variation in the contracts between then and the completion date.
