Insights

The outcomes of an earlier review by the government into mixed-use property purchases and multiple dwellings relief (MDR), was announced in the 2024 Spring Budget. This could have significant implications for property investors.

How is multiple dwellings relief to be affected?

1 June 2024 will see the removal of multiple dwellings relief (MDR), which currently enables purchasers of multiple residential properties to pay SDLT based on the average price per dwelling. This can represent a significant saving on stamp duty costs for transactions involving multiple properties or linked transactions.

No changes are being made to the rules concerning mixed-use property purchases; for instance, a transaction involving residential and non-residential property. Currently a mixed-use property transaction attracts a lower rate of stamp duty because it is taxed at lower, non-residential rates.

How much extra stamp duty will be payable?

The changes removing MDR will result in higher stamp duty tax payable, especially in situations where a high value property purchase includes secondary dwellings.

For example:

A substantial residential property which includes a cottage within the grounds is purchased for £1.5 million. The property is the buyer’s PPR and their only property, resulting in £50,000 stamp duty (SDLT) with the addition of MDR.

From 1 June 2024 when MDR is withdrawn the same transaction will result in SDLT payable of £91,250.

Note that where multiple properties are owned by a buyer the 3% SDLT surcharge is also payable.

Are there exemptions or exceptions to the new MDR rules?

If contracts had already been exchanged on a property transaction either on or before 6 March 2024, MDR will continue to be available for the transaction regardless of when the completion date is. This is based on there being no amendments to the contract after exchange. All property purchases completed before 1 June 2024 will also benefit from MDR where applicable.

There has not yet been any clarification on whether the existing rules concerning the purchase of six or more residential dwellings acquired in a single transaction are being affected by the removal of MDR. These transactions are not typically regarded as a residential transaction and are usually taxed at the standard 5% rate of non-residential SDLT.

In situations where a purchase includes residential and non-residential property e.g. land and outbuildings, the entire transaction is normally taxed at non-residential rates. It is likely that further clarification will be issued by the government on how these cases will be treated for tax purposes, i.e. whether land is classed as part of a garden or grounds of the dwelling and whether outbuildings will qualify as commercial.