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Multiple dwellings relief (MDR) is being abolished with effect from 1 June 2024, subject to transitional rules.

MDR was introduced to encourage institutional investment in housing for rent and to increase the supply of new housing. However, government research found that just over half of the MDR claims were being made by individuals buying properties for private use and that MDR did not materially increase the housing supply. In addition, there were a large number of low value spurious claims made which HMRC found difficult to police.  

Under the transitional rules, where the contract for the dwellings was exchanged on or before 6 March 2024, MDR can still be claimed even if completion is on or after 1 June, provided there has not been any variation after that date.

What BTR transactions will this impact?

Claiming MDR could produce a lower effective rate of SDLT for the purchase of a BTR asset, but not always. Of course, if the transaction was structured as a sale of the vehicle owning the asset then the transaction would be outside the scope of SDLT entirely.

Under MDR, SDLT was paid on the average price of the units but using the residential rates (up to 17%). By not claiming MDR, a BTR purchaser would typically pay SDLT on the non-residential rates which have a top rate of 5%. Whether it was beneficial to claim MDR turned on an interaction of the average price of the dwellings and whether the 2% non-resident surcharge and/or the 3% surcharge applied. Where both the 2% and the 3% surcharges applied it was always better to not claim MDR as the effective rate of SDLT under MDR would always be at least 5%.

Examples of transactions that benefit from MDR, and which from 1 June will therefore have a greater SDLT cost, include:

  • where the average price of the dwellings is low, perhaps because they are under construction and the 2% surcharge does not apply;
  • where there is a material non-residential element such as commercial units (this should mean that the 3% surcharge does not apply);
  • where the asset is purpose-built student accommodation (this should mean that the 3% surcharge does not apply).