How Property Investors Are Affected: Stamp Duty Revision
In last week’s Spring Budget, several changes were unveiled that will impact the UK property market. These include a reduction in capital gains tax and adjustments to how short-term lets (furnished holiday rentals) are taxed.
Concerning stamp duty, the announcement took many in the industry by surprise. Many in the industry had been urging the government to take action. They called for making the current first-time buyer thresholds permanent, reducing or eliminating stamp duty for downsizers, or scrapping the 3% additional rate for property investors to stimulate the buy-to-let market.
Contrary to these expectations, Chancellor Jeremy Hunt revealed the abolition of multiple dwellings relief for stamp duty land tax on dwellings in England and Northern Ireland. This change will come into effect on all transactions. It will have an effective date on or after 1st June this year.
Under this change, anyone purchasing two or more residential properties in a single transaction will no longer benefit from the relief. This will result in a higher final stamp duty bill for both property investors and homeowners.
Grasping the End of Multiple Dwellings Relief for Stamp Duty Land Tax
Buyers can seek multiple dwellings relief when purchasing two or more residential properties, such as a house sold with a separate self-contained flat or an inhabitable garden dwelling. Property investors could also apply for this relief when acquiring two or more units within the same block simultaneously.
Instead of paying stamp duty on each individual unit or property, multiple dwellings relief permitted the buyer to combine the total prices of the dwellings, calculate stamp duty based on the average price, and then multiply this amount by the number of dwellings. This method often resulted in a reduced tax rate, offering potential savings.
Introduced in 2011, the relief aimed to boost property investment in the UK and bolster the buy-to-let sector. However, criticism arose over potential misuse, with instances of ineligible buyers making claims.
After last week’s announcement regarding changes to this relief, buyers must conclude or “substantially perform” the sale by 1st June this year to avail of multiple dwellings relief. This shift marks a departure from the previous system, which allowed for a more flexible application of the relief, potentially impacting those in the property market seeking to benefit from its advantages.
Effect on Investor Interest: A Closer Look
The alteration will indeed affect those intending to utilise this relief for investing in multiple properties simultaneously. However, data from HMRC indicates something crucial. There is no compelling evidence suggesting that multiple dwellings relief significantly impacted the property investment landscape or housing supply.
Tax specialist Kingsley Napley also highlighted a challenge. The system posed difficulties for HMRC in accurately and consistently defining what constitutes more than one property.
They stated: “Some businesses focus solely on adjusting SDLT returns to claim MDR. Predictably, some businesses have made unfounded claims, adding a significant workload for HMRC to manage.
“Case law has also struggled to delineate clearly between a single dwelling and multiple dwellings. It’s evidently a cumbersome system for HMRC to monitor.”
Despite these perspectives, Andrew McCarthy of Pinsent Masons criticised the decision, saying: “The high-quality, purpose-built private rented sector and ‘build to rent’ housing are integral and growing components of the UK’s housing landscape. It appears shortsighted to withdraw relief based on perceived avoidance by presumably affluent individuals, rather than authentic developers and investors.
“This change will affect all transactions. It will have an effective date on or after 1st June this year.”
