build-to-rent stamp duty

Will property investors be affected by latest stamp duty change?

There were multiple calls from the property industry for the Chancellor to make changes to stamp duty to boost investment, but will the alteration announced last week have an impact?

Last week’s Spring Budget contained a few changes that will affect the UK property market, including a capital gains tax cut and changes in how short-term lets (furnished holiday rentals) will be treated for tax purposes.

When it came to stamp duty, the announcement was not what many in the industry had expected, with many calling on the government to make the current first-time buyer thresholds permanent, to reduce or abolish stamp duty for downsizers, or to remove the 3% additional rate for property investors in order to boost the buy-to-let market.

Instead, Chancellor Jeremy Hunt announced that multiple dwellings relief for stamp duty land tax would be abolished on dwellings in England and Northern Ireland. This is set to take effect on all transactions with an effective date on or after 1st June this year.

This change will apply to anyone – either property investor or homeowner – buying two or more residential properties in a single transaction, with the relief allowing the buyer to pay a lower final stamp duty bill.

Multiple dwellings relief for stamp duty explained

It is a relief that can be claimed when buying two or more residential dwellings, which could apply to a house being sold with a separate self-contained flat or habitable garden dwelling, for example. Property investors could also claim the relief when buying two or more units within the same block at the same time.

Rather than paying stamp duty on each separate unit or property, multiple dwellings relief allowed the buyer to add up the total price of the dwellings, calculate stamp duty on the average price, and then multiply that figure by the number of dwellings. This could allow them to pay a lower rate of tax, sometimes saving a lot of money.

It was brought in back in 2011 as part of a drive to encourage property investment in the UK, and to support the buy-to-let sector. However, the relief has been criticised as being something that can be abused in certain scenarios, with buyers claiming it who aren’t legitimately entitled.

Since the change to this relief, announced last week, any transactions entered into after 6th March can only make use of multiple dwellings relief if the sale completes, or is “substantially performed”, by 1st June this year.

Will it deter investors?

While this change will have an impact on those who would have made use of this relief to invest in multiple properties at once, figures from HMRC show that there is no strong evidence that multiple dwellings relief has made a huge difference to the property investment space, or on housing supply.

This was reiterated by a spokesperson at the National Residential Landlords Association: “This is not a widely used relief, its removal is unlikely to have a destabilising effect, but at a time when the Treasury says it wants to encourage investment it seems odd to remove a fiscal tool which may help make a small number of properties more cost effective to bring to the market.”

Tax specialist Kingsley Napley also points out that the system did not work well for HMRC as it could be difficult to accurately and consistently define what constitutes more than one property.

They said: “There are businesses whose sole activity is to make amends to SDLT returns to claim MDR. Perhaps inevitably, some of those claims have been spurious, and it is something that is very labour intensive for HMRC to oversee.

“Caselaw has also struggled to draw an accurate line between what is one dwelling and what is two. It is clearly an overly burdensome system for HMRC to police.”

However, the move has been criticised by Andrew McCarthy of Pinsent Masons, who said: “High-quality, purpose-built private rented sector 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 private rented sector/build to rent acquisitions.”

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