One of the more unexpected inclusions in last week’s Spring Budget and perhaps the most significant for the housing sector was the Chancellor’s announcement that Multiple Dwellings Relief (MDR) would be abolished.

In this insight we look at what impact the abolishment of MDR may have on the housing sector as well as some of the other changes to Stamp Duty Land Tax (SDLT) announced by the Chancellor that will affect Registered Providers (RPs).

What is Multiple Dwellings Relief

MDR has been available since 2011 for qualifying purchases of two or more dwellings in a single transaction or a series of linked transactions. Where MDR applies, SDLT is calculated against the average property value rather than the combined value of the properties. The amount of SDLT payable is worked out by adding up the total price of the dwellings, calculating the SDLT on the average price and then multiplying this figure by the number of dwellings. This generates a significant saving because the purchaser effectively benefits from the lower rate bands of SDLT two or more times.

The Chancellor’s reasoning for abolishing MDR was that there was no evidence that it supports residential property investment or has a significant impact on housing supply. It was also noted that MDR can overcomplicate SDLT with a number of MDR cases going to the tax tribunal in recent years.

Transitional arrangements for the abolition of MDR

MDR will be abolished with effect from 1 June 2024. Transactions with an effective date on or after 1 June 2024 will not be able to rely on MDR unless the transitional rules apply. MDR will remain available for a transaction if contracts have been exchanged on or before 6 March 2024 (even if completion takes place on or after 1 June 2024), provided that there is no variation of the contract after 6 March 2024. A contract entered into after 6 March 2024 will only be able to benefit from MDR if it completes or is substantially performed before 1 June 2024.

For residential property transactions that are linked and include the purchase of dwellings both before and after 1 June 2024, these transactions will be treated as unlinked for the purposes of MDR.

The impact of the abolition of MDR

The loss of MDR will considerably increase the acquisition costs of residential property where there is more than one dwelling and if no other SDLT relief applies to the transaction. MDR was often available for local authorities and for-profit RPs on s106 acquisitions where there is no grant funding. There may be pressure in some cases to complete residential property transactions before 1 June 2024 but whether there will be any long-term effect of the loss of MDR on the housing market remains to be seen. Although MDR provided valuable tax relief for purchases of multiple residential dwellings, it is important to note that the non-residential SDLT rates (with a top rate of 5%) will still be available where six or more dwellings are being acquired.

Changes to Registered Social Landlord Relief (RSL)

The Chancellor also announced a change in relation to Registered Social Landlord relief, which provides an exemption from SDLT for purchases undertaken by RPs of social housing with public subsidy. The SDLT legislation will be updated to ensure that RPs will not be liable for SDLT when purchasing property with a public subsidy and the list of public subsidies will now include public grants that have been permitted to be retained and recycled to qualify for the exemption. This will apply to transactions where the effective date of transaction is on or after 6 March 2024.  

Section 71 Finance Act 2003 will be amended to remove out-of-date references, to add recycled subsidy to the list of public subsidies and to update the definition of a relevant housing provider to include local authorities.

The aim of this change is to ensure that public funds granted to providers of social housing go fully towards the provision of homes rather than being spent on SDLT. It is also to ensure that the SDLT legislation is up to date for registered social landlords and removes uncertainty for some RPs of social housing, such as local authorities, in relation to their eligibility status and for all RPs where public subsidy is recycled for the provision of new social housing.

These changes provide welcome clarity to the legislation and will benefit providers of social housing by clarifying their eligibility status for the SDLT exemption and thereby helping to reduce their overall tax burden.

How Capsticks can help

Capsticks aims to be the firm of choice for RPs, offering a full service from development and planning law to banking and finance, leasehold and asset management. We are experts on all aspects of compliance with these new legal requirements and can advise on the broader changing landscape of the housing sector.

If you have any queries around what's discussed in this article, and the impact on your RP, please speak to James Aronsson to find out more about how Capsticks can help.