UK Budget 2024: abolition of multiple dwellings relief among residential property tax changes

Relief from stamp duty land tax (SDLT) for multiple dwellings in England and Northern Ireland (MDR) will be abolished for transactions which complete or substantially perform on or after 1 June 2024. Relief will continue to be available beyond 1 June where contracts have been exchanged on or before the date of the Budget on 6 March, provided there is no variation to the contract after that date.

Jamie Robson, a tax expert at Pinsent Masons, said, “MDR provides valuable tax relief in the build to rent and shared ownership sectors by calculating the rate of SDLT on transactions involving multiple dwellings using the average consideration for each dwelling, subject to a minimum 1% rate; rather than the total consideration. SDLT will now be expected to be charged at the residential SDLT rate applicable or, where there are six or more dwellings, the non-residential rate.”

MDR was introduced to reduce a potential barrier to investment in residential property and promote private rented sector (PRS) housing supply.

According to research commissioned by HM Revenue & Customs (HMRC), there is no strong evidence that MDR plays a significant role in supporting residential property investment, and it has a minimal positive impact on overall housing supply or PRS supply. The research was commissioned by HMRC following a 2021 consultation on multiple property purchases and MDR, a response to which has also now been published.

Robson said it was “disappointing” that the government had opted to remove the relief altogether “rather than exploring further potential options for reform”.

“Given that changes to MDR only apply in England and Northern Ireland, it will be interesting to see if the Welsh and Scottish Governments follow suit in respect of similar reliefs that apply in respect of Welsh Land Transaction Tax and Scottish Land and Buildings Transaction Tax,” he said.

Tax expert Andrew McCarthy of Pinsent Masons said: “High-quality purpose-built PRS and ‘build to rent’ housing plays a key and increasing part in the UK’s housing mix, and it seems short-sighted to withdraw relief based on the perception of avoidance by presumably high-net worth individuals, rather than genuine developers and investors. Going forward, a targeted relief may need to be introduced for PRS/BTR acquisitions.”

In another property tax measure, the higher rate of capital gains tax payable on profits on disposals of residential property is being reduced from 28% to 24%. The reduced rate will apply from 6 April. According to a government policy paper, this reduction should incentivise earlier disposals of second homes, buy-to-let property and other residential property where accrued gains do not fully benefit from private residence relief (PRR).

The lower rate of 18% will continue to apply for disposals by basic rate tax payers that do not benefit from PRR.

The chancellor also confirmed the introduction of a new reserved investor fund (RIF) to meet industry demand for a UK-based unauthorised contractual scheme, with lower costs and more flexibility than the existing authorised contractual scheme. Confirmation of the new fund vehicle follows proposals announced last year.

McCarthy said: “Any ability for investment in UK commercial real estate to be made in a more tax efficient manner is to be welcomed at the moment given stubbornly high financing costs and reduced rental streams. It is particularly welcome to see RIFs being added to the list of institutional investors for REIT [real estate investment trust] purposes, which may contribute to the increasing appetite for REITs, especially private REITs.”

The furnished holiday lettings regime is to be abolished, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. These changes will take effect from April 2025. However, to prevent unconditional contracts being used to obtain tax relief under the current rules, an ‘anti-forestalling’ rule will be introduced with effect from 6 March 2024.

"There has been some comment in recent months about the potentially distorting effect for local residents in holiday hotspots of a tax-beneficial regime for short-term furnished holiday lettings versus long-term residential lettings, in respect of which the tax relief has been reduced over a number of years,” said McCarthy.