Abolition of SDLT MDR – Introduction
In a surprising move, Wednesday’s budget revealed the abolition of the Stamp Duty Land Tax (SDLT) Multiple Dwellings Relief (MDR) effective from 1 June 2024.
This announcement marks a significant shift in tax policy affecting buyers of residential property in England and Northern Ireland.
Understanding SDLT MDR
SDLT MDR offers relief to purchasers acquiring two or more residential dwellings in a single or linked transaction.
Although the relief’s rules can be complex, especially when combined with the higher rates for additional dwellings (HRAD), its essence lies in allowing tax calculation on the average value of the properties, rather than the total combined value, subject to a minimum 1% tax rate.
This relief has enabled buyers to significantly save on tax, leveraging lower SDLT rates more effectively.
Rationale Behind the Abolition
Following a consultation in November 2021 on SDLT mixed property rules and MDR, the government found that MDR did not significantly influence institutional property investors’ decisions, mainly because most new built-to-rent properties are developed through forward funding, which MDR does not affect.
The Impact on Property Transactions
The discontinuation of SDLT MDR introduces changes in how property transactions are taxed.
For instance, contracts signed before the announcement but completing after 1 June will still benefit from MDR.
However, future transactions, especially those involving second-hand assets between institutional investors, will see altered tax implications.
Examples Illustrating the Impact of the Changes
Buying a Block of Flats
Consider a transaction where a company sells a block of 50 flats for £10 million.
With MDR, the tax charge could be reduced by not too far shy of £200k.
Without MDR, the transaction will revert to the higher tax amount.
Demolishing Houses for Development
In another scenario, buying properties to demolish and redevelop would see a shift from a potentially lower tax charge, thanks to MDR, to a significantly higher amount without the relief.
Implications Beyond England and Northern Ireland
While SDLT does not apply in Scotland (or Wales), both have equivalent reliefs as their corresponding legislation is largely copied and pasted from England and Northern Ireland.
Either or both might decide to mirror the abolition in their own rules as a stealthy way of raising revenue. Alternatively, maintaining the difference might promote investment.
Abolition of SDLT MDR – Conclusion
The budget’s unexpected announcement to abolish SDLT MDR from June 2024 will be potentially a costly, and stealth, tax rise for those involved in relevant residential property transactions.
Will the rest of the UK follow suit?
Final thoughts
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