Abolition of SDLT Multiple Dwellings Relief

Stamp Duty Land Tax, or SDLT, is a tax paid by buyers of land and buildings in England and Northern Ireland. Scotland and Wales have their own versions of this tax. SDLT replaced the old stamp duty in 2003 and can go up to 17%, though that top rate is rarely seen. Typical rates for residential property range between 3% and 8%.

How is SDLT calculated?

SDLT rates are progressive, increasing with the property's value:

• Up to £250,000: 0%

• £250,001 to £925,000: 5%

• £925,001 to £1.5 million: 10%

• Over £1.5 million: 12%

Additional surcharges apply: 3% if the buyer is a company or owns other properties and 2% for non-resident buyers.

Introducing Multiple Dwellings Relief (MDR)

Buying multiple properties can lead to hefty SDLT charges since the tax is calculated on the total value. For instance, purchasing a single dwelling for £200,000 incurs a 3% SDLT (£6,000). However, buying five such properties together could result in an SDLT of £71,250 without relief.

MDR, introduced in 2011, offered a solution. It allowed SDLT to be calculated based on the average price per property, then multiplied by the number of dwellings.

So, for five £200,000 properties, the SDLT would be five times £6,000, totalling £30,000 - saving £41,250.

In addition to buying several distinct dwellings, MDR could also be claimed for ‘granny flats’, cottages, or annexes suitable for use as a dwelling when a main house was bought. 

However, this led to some dubious claims, such as for artists' studios and fancy garages, which HMRC often rejected.

There was also a feeling that claiming MDR for ‘granny flats’ was unfair given that such an additional dwelling would not be liable to the 3% surcharge for having more than one dwelling. It would have been possible for the unfair situations to have been excluded from MDR. Instead, MDR was abolished unexpectedly in the March 2024 Budget, effective from 1st June 2024. Transitional rules apply for contracts entered before 6th March 2024, and completed after 31st May 2024. The updated guidance was issued by HMRC on 31st May 2024 covering those.

Impacts on buy-to-let landlords

The end of MDR adds to the series of challenges buy-to-let landlords have faced since 2011:

1. A 3% SDLT surcharge from 2016

2. Restrictions on deducting finance costs from rental income starting in 2017

3. Higher capital gains tax (CGT) rates on residential property sales compared to other assets

What can landlords do now?

Landlords can still claim MDR for purchases completed before 1st June 2024, provided they do so within one year and 14 days of completion, even if they failed to claim it in their initial SDLT return. Additionally, buying six or more dwellings in one transaction classifies the purchase as non-residential, with generally lower SDLT rates:

• First £150,000: 0%

• £150,001 to £250,000: 2%

• Above £250,000: 5%

The 3% surcharge does not apply here

Final tip

Residential landlords who still have the stomach for a drink would do well, where they are able, to buy the six-pack and not the individual can or, if wine drinkers, half a case not the single bottle.

If you are concerned about the issues discussed here, we urge you to seek professional legal advice. Our corporate and commercial team is on hand to provide expert advice and guidance.