3rd
Jun 2024
Saturday’s contentious stamp duty change (June 1st) announced by the Chancellor some months ago has been decried for missing an opportunity to restructure the private rental sector.
David Hannah group chairman of Cornerstone Tax comments in light of the HMRC abolishing the stamp duty Multiple Dwelling Relief - MRD.
He says: “MDR was first implemented as means to incentivise bulk purchases and provided developers with a suitable avenue for delivering low-cost homes. At a time when demand for affordable housing has skyrocketed, the government should look to create fresh incentives for developers, instead of abolishing old ones.
“The decision by the Chancellor to increase the tax that developers are forced to pay from 1-2% to 5% will have a seismic shift across Britain’s construction sector, leading to project abandonment and further increases to asking prices as supply continues to lag behind an overwhelming demand for affordable housing. Don’t be fooled, this is a stealth tax increase with a paper-thin justification laced over the top of it.
“The Chancellor could have used this opportunity to reform the private rental sector - measures including the abolition of the second home surcharge from rental sector investors and reinstating full relief on mortgage interest payments would have both reduced the costs of purchase, whilst also allowing landlords to freeze, or potentially cut, rents.”
MDR was available to all buyers purchasing two or more dwellings in single or linked transactions which had allowed the purchaser to calculate the tax based on the average value of the individual properties rather than the total value of the properties. This has been used by many portfolio landlords and in some cases those that have a ‘granny annexe’.
It was introduced in 2011 to encourage investment in residential property and to boost the private rental sector.
And of course HMRC strongly refuted the comments with its statement, saying: “An external evaluation of MDR carried out as part of HMRC’s Tax Reliefs Evaluation Programme, found no strong evidence that the relief plays a significant role in supporting residential property investment, and that it has a minimal positive impact on overall housing supply or PRS supply. The evaluation has shown that MDR is not cost effective in meeting its original objectives. This measure therefore abolishes MDR from June 1 2024.”
The government held a consultation on the future of MDR last year in December discussing four options, none of which was to scrap the relief entirely, but true to form the Chancellor Jeremy Hunt announced the forthcoming ending of the relief in March.
The international legal practice Osborne Clarke says: “It may be that a combination of the raft of recent case law around the application of MDR and growing attention on tax reclaim agencies encouraging individuals to submit dubious claims for the relief, along with the government-commissioned external evaluation of MDR, led to its abolition.
“The benefit of claiming MDR had also already been eroded for certain investors prior to this announcement. The potential for one or both of the 3% surcharge for higher-rate transactions and the 2% non-resident SDLT surcharge for non-resident purchasers applying often meant that it was not beneficial to claim the relief, particularly if the purchaser was non-resident. The cost benefit that may have arisen for UK purchasers over non-residents will now be removed.
“However, for investors there were certain transactions where MDR could be claimed without the 3% higher-rate surcharge arising (for example, certain types of student accommodation and mixed-use properties) and these will be affected most by the change.”
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