We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
Understand the implications for landlords
Multiple Dwellings Relief (MDR) has been a significant tax relief for landlords and property investors in the UK, offering substantial savings on Stamp Duty Land Tax (SDLT) when purchasing multiple properties.
However, Finance (No. 2) Act 2024 abolishes multiple dwellings relief for stamp duty land tax (SDLT). This measure applies to land transactions where the effective date falls on or after 1 June 2024, subject to transitional arrangements. Purchasers who exchanged contracts on or before 6 March 2024 remain eligible for MDR regardless of when the transaction completes, provided there is no variation of the contract after that date.
Until 31 May 2024, MDR allowed buyers of multiple residential properties to calculate SDLT based on the average value of the properties, rather than the total transaction value. This resulted in significant SDLT savings, particularly for investors when they were purchasing portfolios of properties or incorporating their rental business.
Comparison of the changes to MDR benefits
The following example outlines of how MDR worked until 31 May 2024 to save SDLT on multiple property purchases for landlords:
Scenario:
An investor purchases three residential properties for a total of £1,500,000.
Without MDR:
The SDLT on a £1,500,000 purchase would be calculated using the standard SDLT rates, potentially resulting in a tax liability of around £93,750.
With MDR:
Under MDR, the SDLT is calculated on the average property value (£1,500,000 / 3 = £500,000). The SDLT on £500,000 is significantly lower, approximately £15,000 per property, resulting in a total SDLT of £45,000 for the three properties.
Impact on landlords and property investors
Without MDR, landlords will face higher SDLT liabilities when purchasing multiple properties. Using the earlier example, the tax liability would increase from £45,000 to £93,750, doubling the tax cost. Landlords will need to reassess their financial planning and budgeting to account for the higher SDLT costs. This may involve negotiating lower purchase prices to offset the increased tax burden.
While intended to simplify the SDLT regime and increase tax revenue, this change will have notable financial implications for landlords and property investors. Careful planning and strategic adjustments will be essential for landlords.
ACCA’s technical factsheet Property tax provides detailed guidance on other property taxes such as VAT, capital gains tax, ATED etc for landlords and developers.
Useful resources