There is now less than a month to go before stamp duty changes announced by the Chancellor in the Spring Budget will come into play, and it could cause a rush to complete.
While many in the property industry had called for a stamp duty overhaul in the latest Spring Budget – ranging from scrapping it completely to removing the surcharge for landlords to boost investment in the private rented sector – the change that was actually announced was not what had been expected.
Rather than altering thresholds or eligibility, Chancellor Jeremy Hunt announced an end to multiple dwellings relief for stamp duty in England and Northern Ireland. This is set to take effect on 1st June this year, meaning there is just over three weeks left until the relief is abolished.
The relief has allowed property investors who are buying more than one dwelling or unit at once – which might include buying more than one unit in a block of flats, for example – in either a single or linked transaction, to pay a reduced amount of stamp duty land tax.
How multiple dwellings relief works
You can currently claim multiple dwellings relief 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 was announced during the Spring Budget in March, 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 this stamp duty change affect the market?
With less than a month left to go, buyers who had already set their sights on investing in multiple dwellings in some form, and making use of the relief, may well have accelerated their purchase in order to make sure it goes through before the deadline.
The relief can save the buyer a lot of money. For example, if you were to buy four properties/units for a total of £1 million (with each property having varying values), using the relief you would divide the total £1 million purchase price by four to reach a figure of £250,000.
You do not owe any stamp duty on residential purchases up to £250,000, as that is the current minimum threshold (although for property investors who already own a main residence/other properties, the 3% surcharge still applies). Under the multiple dwellings relief, the buyer must pay 1% of the total amount paid for the dwelling, meaning the bill would be £10,000.
However, despite the fact that it can allow the buyer to make significant savings, many in the industry do not believe it will have a major impact, as it is not a relief that is used very often.
For example, the National Residential Landlords Association said: “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.”
Opportunities for investors
At the same time, Oliver Prior, auctioneer and national commercial director at Auction House, believes that the upcoming change leaves a narrow window of opportunity for sellers to use the relief to entice buyers.
“Landlords facing the abolishment of Multiple Dwellings Relief should seriously consider the auction route. Auction offers a streamlined process to sell properties quickly and with certainty, providing a viable solution for those looking to divest their portfolios efficiently and before June 1.”
Prior says this shift also presents an opportunity for new investors to increase their portfolio, due to the possibility of more properties becoming available to purchase.
