MDR abolished, Build to Rent to suffer

Womble Bond Dickinson explain why the abolishment of the Multiple Dwellings Relief (MDR) is a blow to the Build to Rent sector.

With the recent abolishment of the MDR, Womble Bond Dickinson has released insights that shows the consequences this will have on the Build to Rent sector | BTR News

Law firm Womble Bond Dickinson has released insights into the abolition of the MDR in the recent Budget and its impact on the Build to Rent sector. The ability to apply for MDR is essential to the delivery of vitally needed housing by the Build to Rent sector, the firm stated.

In December 2023, GOV.UK released a relatively unnoticed update in which they indicated the previously established statistics for MDR had been withdrawn and the methodology used to review it was being revised.

According to Womble Bond Dickinson, the consequence of the correction is that the average annual MDR total claimed by way of Stamp Duty Land Tax (SDLT) savings rose from c. £50m to £245m (taking the four years up to financial year 2019-2020).

“This review identified [two] errors which have been corrected. We now provide revised estimates for the financial year 2019 to 2020 and the [three] preceding years, and new estimates for the financial years 2020 to 2021 and 2021 to 2022.”

GOV.UK

However, in its own report released on 6 March 2024, the Government conducted an assessment to develop a greater understanding of the use and effects of the relief and assess the purposes for which it was being applied – and whether such uses were consistent with the purposes for which MDR was intended.

“These findings should not be considered conclusive evidence of MDR failing to reach its objectives of reducing barriers for purchasing residential property with a view to supporting supply in the private rented sector.” 

GOV.UK

Build to Rent is an essential way of delivering vitally needed housing with £4.5bn invested in 2023 (the second highest year on record), research from Savills indicates. Womble Bond Dickinson highlights that the impact of the tax change on the sector is likely to hit hard with a consequence – even fewer homes delivered.

Stamp Duty Land Tax (SDLT) is payable on the purchase of residential property, with the amount payable depending on the price paid. Where it exceeds £1,500,000, SDLT is payable (in the case of the excess) at the rate of 12%.

If the purchaser is a company, there is a 3% surcharge. There is also a further 2% surcharge if the purchaser is treated as non-resident for SDLT purposes.

The SDLT payable when purchasing residential property is significant. This is particularly the case where more than one property is being purchased at the same time because SDLT is payable by reference to the total consideration for all the properties, Womble Bond Dickinson found.

However, the amount of SDLT due may be reduced in the following two cases:

  • If six or more residential properties are acquired at the same time, the transaction is treated as being the purchase of non-residential property – so SDLT is payable at commercial rates, which is capped at 5%.
  • MDR claimed: the SDLT is payable by reference to the average price of the properties multiplied by the number of properties (and subject to a minimum of 1% of the aggregate consideration).

If a purchaser was purchasing 100 residential properties for £300,000 each in one transaction (ie with the total purchase price being £30m), a claim for MDR would reduce the SDLT liability from £1,489,500 to £1,150,000.

If the purchaser bought 99 residential properties for £300,000 each and a commercial unit of £300,000 in one transaction, a claim for MDR would further reduce the SDLT liability to £311,895.

Although not the only option, MDR is therefore a valuable tool for Build to Rent schemes which typically comprises of mixed-use developments or involves numerous units being acquired.

Womble Bond Dickinson concluded that while MDR will remain available for transactions with an effective date on or after 1 June 2024 if contracts are exchanged on or before 6 March 2024, this is only subject to such contracts not being varied after 6 March 2024.