Major housing firms have written to the Chancellor Jeremy Hunt in a bid to halt the removal of a tax relief that will see investors pay more on big property purchases.
The Stamp Duty Land Tax Multiple Dwellings Relief is to be abolished in June, after being singled out during the Spring Budget in March.
This will affect landlords and home buyers who could have to pay tens of thousands more in tax when buying more than one home.
But now large rental property investors and advisors are also rallying against the change, claiming that it will cut the value of their properties by 4 per cent.
Abolished: The multiple dwellings relief was aimed at property buyers purchasing more than one property in a single transaction, and provided a stamp duty saving
What is multiple dwellings relief?
The tax break offers stamp duty relief on purchases of two or more properties in a single transaction, or in linked transactions.
It can be claimed on houses and flats bought at the same time, mixed-use properties such as shops with a flat above, or in some cases on annexes purchased alongside a main house.
The relief means that currently, a property investor purchasing three apartments from a developer at £350,000 each, would have to pay £46,500 in stamp duty.
However, once multiple dwellings relief is abolished in June, that same investor will have to pay £77,750.
This is because with the tax break included, the purchase of the three flats is treated separately rather than collectively for the purposes of SDLT.
The change in June means property investors who buy between two and five apartments in the same development as part of the same or a linked transaction will now have to pay an increased amount of tax.
Investors buying six or more properties, or a mixed-use property, will still be able to apply non-residential stamp duty rates, which are lower than residential rates, according to the accountancy firm, HW Fisher.
If for example a person purchased six properties for a total of £1,500,000, then applying the residential rates of stamp duty would lead to a bill of £91,250.
However, because they are buying at least six properties, they can apply the commercial rates of stamp duty. This results in a bill of £64,500, a significant saving.
What have property companies asked Jeremy Hunt?
The letter to Jeremy Hunt was sent by the British Property Federation and UK Single Family Association, on the behalf of almost 50 property firms.
The list of names at the bottom of the letter include firms such as property agents CBRE and JLL, investment manager Invesco and build-to-rent developers Grainger and Moda Group.
It labels the abolition of multiple dwellings relief as ‘counterproductive’ and warns it will ‘result in fewer new homes being built and a drop in both domestic and overseas investment into UK housing delivery.’
The letter claims the removal of the tax break will have a particularly negative impact on the build to rent sector.
This is where corporate investors such as pension funds and insurance companies, partner with house builders and developers to build large-scale rental home developments. The investors then retain the homes rather than selling them on, essentially acting as corporate landlords.
These schemes have created new apartments and houses specifically designed for renters based in various towns and cities across the UK.
Rents are often more expensive than the market average due to amenities provided, such as gyms and communal lounges.
The letter to Hunt estimates that between 13,000 and 25,000 rental homes will no longer be built as a result of scrapping multiple dwellings relief.
This, it says, is because the changes to stamp duty will mean the value of the properties goes down.
Bad for building: Property companies say that if multiple dwellings relief is scrapped, fewer homes will be built for rent as their value will go down to make up for the tax increase
Even though they aren’t designed for sale, the value of a build to rent development is still important to the owner because it impacts their ability to borrow money to build it, for example.
Stamp duty is also payable when a development is sold from one corporate owner to another.
Ian Fletcher, director of policy for real estate at the British Property Federation told This is Money: ‘The main impact is on the valuations that go into development appraisals before a new build-to-rent project is even built.
‘Getting rid of multiple dwellings relief reduces the price that a developer is able to sell the building to an institutional investor that is likely to be the ultimate owner.
‘This erodes the developer’s profit margin and results in fewer new BTR projects being viable.’
The letter states: ‘It will increase the tax burden on building new rental homes, which will hurt viability through lower assumed sale values in investment calculations. Fewer homes will get built as a result.’
It also claims that abolishing multiple dwellings relief will impact new developments in areas with lower property values disproportionately.
It finishes by saying that keeping multiple dwellings relief for large-scale residential property acquisitions would support future home building across the country – not just the delivery of rental homes but also affordable and for-sale homes.
But others have questioned whether big property firms should continue to benefit from the tax relief.
Peter Bill is the author of Property Planet and co-author of Broken Homes: Britain’s Housing Crisis: Faults, Factoids and Fixes
Peter Bill, the property author and commentator, says: ‘Marvel at the brass neck of those who build vast student dormitories and towers stacked full of rental flats.
‘Chancellor Jeremy Hunt is ending a widely-abused tax break on 1 June called multiple dwellings relief, which allows landlords buying between two and five properties to pay less stamp duty.
‘An HMRC investigation found nearly half these claims were bogus.
‘The rules offer another benefit. Student housing and build-to-rent firms have been able to budget for lower stamp duty costs when planning developments.
‘The stamp duty for the whole development can be calculated on the average price of all the units, which is usually lower than the sum total of sales.’
Bill believes that the developers’ claims that their properties will be devalued by 4 per cent should be taken with a pinch of salt.
‘This is a bit of an exaggeration,’ he adds. ‘The British Property Federation argues the value of [developments] could be cut by up to 4 per cent as potential buyers could not claim multiple dwellings relief and would clip the price to cover for the extra tax.
‘It claims that the real value of multiple dwellings relief is not in actually making a claim for it during planning, but in being able to plan a new development on the basis that such a claim may at some point be made.
‘This convoluted reasoning dodges the fact that for every £1 rents rise above the budget forecast can add £15 to the value. Rents have soared in recent years.
‘Sale prices are calculated as a multiple of the rent. The idea that developers will indulge in the scrapping of schemes today because the tax a buyer of the completed scheme might have to pay three or four years down the line is nothing more than fear mongering.’
‘Too many spurious claims’
While large property firms are campaigning against the scrapping of multiple dwellings relief, most of those who have used it are landlords or home buyers.
This might include those buying multiple homes to knock together, or investors purchasing a few flats to rent out in the same block.
Multiple dwellings relief was introduced in 2011 to reduce a potential barrier to investment in residential property and promote private rented sector housing supply.
A report by HMRC, published in March, showed that it considered about 27,000 claims between 2019 and 2022.
Of these, about 20,000 were made by individuals and 7,000 by companies or others.
Nine in ten claims made by individuals were for between two and five units, as were 60 per cent of claims made by companies and others.
In fact the vast majority of of private individuals claimed the relief against the purchase of only two properties.
However, the evaluation carried out by HMRC 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 supply.
Thanks to the removal of multiple dwellings relief, the Treasury is anticipating a revenue boost of £385 million annually by 2028-29.
Henry Pryor, a professional buying agent believes the writing was on the wall for the tax break because it was frequently misused.
Henry Pryor, a professional buying agent and property expert says too many private buyers exploited MDR with spurious claims
‘Whilst there will be a few portfolio buyers who will gnash their teeth about the passing of multiple dwellings relief, the blame can be squarely laid at those private buyers who exploited the opportunity with spurious claims for spaces like garages that they suggested could be used as separate dwellings,’ he says.
‘There’s a story doing the rounds that one firm of tax advisors even tried to claim the relief for a green house.
‘A new breed of tax advisor has emerged in the past decade offering home buyers advice to reclaim over-paid stamp duty.
‘Because the sums are so large now many naive buyers have fallen for the snake-oil salesmen.
‘HMRC has been slow to catch on but have not been as slow to catch up. Recovery and penalties have shot up and the change in the rules will be in large part down to this. ‘
Sam Dewes, a tax partner at HW Fisher adds: ‘The relief was aimed at property buyers purchasing more than one dwelling in a transaction.
‘Whilst it did provide a stamp duty saving for people in such circumstances, it did lead to a number of more spurious claims.
‘Awareness of the relief was not that high, and the Chancellor mentions that it has not brought the intended benefits to the rental market making it a fairly easy revenue-raising adjustment for the Government.’
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