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Lee Sharpe looks at the abolition of multiple dwellings relief, why it happened, and what options remain for landlords buying residential property.

The Spring Budget 2024 on 6 March 2024 announced that multiple dwellings relief (MDR) from stamp duty land tax (SDLT) would be abolished for purchases from 1 June 2024, albeit with provisions to protect ‘slow’ contracts exchanged on or before Budget Day but not completed by 1 June 2024.

The government reasoned that HMRC’s recent research had found no strong evidence that MDR had substantively succeeded in its aim of encouraging (or at least reducing disincentives to) residential property investment or increasing overall housing supply.

Note: As this is an SDLT measure, it applies only in England and Northern Ireland (although Scotland and Wales do have similar provisions in their land and building transactions tax (LBTT) and land transactions tax (LTT) regimes respectively).

Background: Consultation

Generally, SDLT is assessed on the aggregate chargeable consideration, with higher rates applicable as the amount increases.

So, while the SDLT on one house is £150,000 = £4,500, the SDLT on five such houses costing £750,000 in total = £47,500 (based on combined purchase price).

MDR worked so that the SDLT payable aligned with what would have been payable had each property been purchased individually from different vendors in separate transactions (NB there are long-standing anti-avoidance provisions that prevent you from buying a block of properties individually over time to circumvent the increased rates on aggregated consideration (i.e., the ‘linked transactions rule’ in FA 2003, s 108). Before this, people used to try to buy the grounds separately from the house or similar. It could be argued that MDR was meant to protect genuine transactions from the excesses of the linked transactions anti-avoidance regime).

So, using MDR, you could apply SDLT at five houses x the average for one house £4,500 = £22,500.

Here, MDR could have reduced the SDLT bill by £25,000 – more than half of the standard charge.

However, HMRC was deeply unhappy about abusive claims for MDR being applied when someone bought a substantial residence and then decided that an annexe (or similar) amounted to a separate dwelling. So, it issued a consultation in November 2021 that included various options to hobble MDR (notably, none of HMRC’s options was: “it’s fine, keep MDR as it is”). The consultation also covered mixed-use acquisitions; more on those later.

Tribunal cases: The worst of claims?

There were numerous MDR claims involving meagre accommodation subordinate to a more substantial dwelling – annexes, basements, and the like.

Fiander and Bower v Revenue and Customs [2021] UKUT 0156 (TCC), being heard at the Upper Tribunal, should have put an end to this without having to abolish MDR entirely, but it seems HMRC was still worried. Tribunal cases comprise only a very small percentage of claims and are often unusual or at the margins. Most disagreements on claims do not get as far as tribunal – let alone claims in general. So, it can be said that tribunal cases may well represent only the worst of claims. Only HMRC really knows how many valid cases for MDR were getting through – and I fear HMRC may be guilty of seeing abuse pretty much everywhere, rather than a relief operating as Parliament had intended.

What options remain?

• The ‘six or more rule’ states an acquisition of at least six dwellings together will be treated as non-residential or mixed-use, normally a much more favourable (lower) overall rate (FA 2003, s 116 (7)).
• Or, in some cases, the property acquired is not wholly residential (the classic example being a building that comprises one or two residential flats over retail space). Here again, the commercial rates would apply instead (FA 2003, s 55(1B)).

Other more specialised reliefs include:

• Where a house-builder (or property trader) buys a person’s old house so that they can buy a new house from the developer, etc.
• Likewise, where a property chain ‘breaks’ and the property trader steps in to buy a property to preserve the chain.
• An employer (or property trader) buys an employee’s former dwelling, as the employee has to change their residence (dwelling) due to relocation.
• Compulsory purchase order to facilitate a development project, or where the developer agrees to transfer property across to a local authority as part of an overall project.
• Certain acquisitions by charities, social landlords, public bodies and similar.
• First acquisition of a ‘zero-carbon home’.

HMRC still doesn’t get it!

I think it is arguable that HMRC is being overly protective of SDLT revenues.

HMRC is still taking cases involving (historic) MDR claims. And it is still losing some that are clearly not as abusive as HMRC believes:

• Marcus & Marcus Ltd v Revenue and Customs [2022] UKFTT 145 (TC) was reasonable, although HMRC’s generous proposal to allow a late claim may now be blocked by Ridgway v Revenue and Customs [2022] UKFTT 0412 (TC) – see below.
• HMRC threw the kitchen sink at Winfield v Revenue and Customs [2024] UKFTT 00734 (TC) – almost a dozen arguments – but the tribunal had “no hesitation” in finding that there were two dwellings, even so.

With mixed-use purchases, HMRC accepted in its consultation that: ‘Mixed-property purchases are subject to SDLT at the lower non-residential rates even where the amount of non-residential land in the purchase is very small’, but then complained that this was unfair, even though the law explicitly states that the higher residential rates should be charged only if a transaction consists ‘entirely of residential property’. HMRC’s consultation seems to think what parliament really intended was that mixed-use should apply only if non-residential use were quite substantial.

It is arguable that the real unfairness is that residential property rates have reached eye-watering levels, while mixed-use rates have moved relatively little. And, yes, there have been quite adventurous claims that a property has non-residential use but, here again, HMRC is losing some cases as well (e.g., Suterwalla v Revenue and Customs [2024] UKUT 00188 (TCC)

The lesson lurking in Ridgway: Pick a lane!

People may recall Ridgway v Revenue and Customs [2022] UKFTT 0412 (TC) as one such ‘adventurous’ mixed-use case, given that the appellant had arranged for the vendor to lease out their old summer house to a studio two weeks before completing the purchase of the overall property.

At the Upper Tribunal, Ridgway v Revenue and Customs [2024] UKUT 00036 (TCC) considered whether the taxpayer could then go back and claim MDR instead, having been denied mixed-use treatment because the old summer house was a second dwelling, not commercial. Alas, the taxpayer was denied MDR because he had not claimed it in his SDLT return. The SDLT return is highly structured and permits only one relief claim by number code, with no provision for additional information, etc., wherein the taxpayer could state: “I’m claiming mixed-use but in case that goes pear-shaped, please let me have MDR instead”.

Conclusion

Wales’ consultation on abolishing its own version of MDR appears to have hit a roadblock; strangely, a fair proportion of respondents have argued that abolishing it is a bad idea and risks future residential property investment and supply; so far, Scotland has no plans to ditch its version of MDR either.

Perhaps, then, one might conclude it unwise to ask HMRC if a relief is working as intended; it’s like asking a tobacco company if the health warnings on fag packets have been good for business.

More widely, we might well ponder what it means when HMRC constructs the form of a return, permits only one claim to be made, and no alternative in default, regardless of validity. On the other hand, if you can claim only one relief on a form, then taking away the alternatives makes the choice easier, I suppose. Harder for HMRC to be accused of stifling claims. Probably the kind of ‘simplification’ HMRC can really get behind!

Those property investors who cannot afford to buy their properties by the half-dozen will likely want to claim their acquisitions have mixed-use, wherever possible. We can expect HMRC to double down on its complaints about the (ab)use of ‘mixed-use’ very soon.