Consultation outcome

Stamp Duty Land Tax: Mixed-Property Purchases and Multiple Dwellings Relief - summary of responses

Updated 6 March 2024

1. Executive Summary

A Stage 1 consultation was held from 30 November 2021 to 22 February 2022 on 2 measures to improve the operation of SDLT. The 2 measures aimed to ensure fairer outcomes and reduce the scope for incorrect claims and abuse of the rules for:

• ‘mixed-property’ transactions – purchases which consist of both residential and non-residential property
• relief for purchases of 2 or more dwellings – known as ‘Multiple Dwellings Relief’ (MDR)

Forty-one written responses were received, and officials held 11 meetings with external stakeholders. Respondents and stakeholders included legal advisors; investors; landowners; those with business interests; and those who promote intergenerational fairness, or act on behalf of persons in need of additional support. We are grateful to all respondents and those with whom we discussed the proposals.

In relation to mixed property purchases, the consultation sought views on a new apportionment method of calculating the tax, meaning that the residential portion of a mixed-property purchase would be taxed as residential property, and the remaining non-residential portion of the purchase would be taxed as non-residential property. Following feedback received during the consultation, the government has decided not to make any legislative changes introducing new apportionment rules for mixed-property purchases.

MDR was introduced in 2011 to reduce a barrier to investment in residential property and promote private rental sector (PRS) housing supply. The consultation document set out 4 potential options for reform of the rules to tackle known abuse of the relief.

Following the consultation, and as part of HMRC’s Tax Relief Evaluation Programme, the government commissioned an external evaluation of MDR to assess whether the relief is meeting its original objectives. The evaluation found no strong evidence that the relief plays a significant role in business decision making and supporting investment in property for the private rental sector (its original intention), and that it has minimal positive impact on the housing supply overall.

Results from the evaluation show that 51% of the total number of MDR claims come from individuals buying properties for private use, which does not support PRS investment or housing supply. In fact, 53% of private individuals reported becoming aware of MDR after their decision to purchase. Private individuals tend to purchase high value properties (median value £940,000). HMRC experience is that individuals are particularly vulnerable to tax repayment agents who encourage the submission of incorrect claims to MDR, requiring enquiry action by HMRC.

In relation to businesses that use MDR – 52% said it had a limited, or no, influence on their decision making. Only 32% of those buying in the PRS said it had an important influence on their purchase decision. Business claims are for existing housing stock as opposed to new housing stock, with only 12% of business claims for new builds. This suggests that MDR has a minimal positive impact on the overall housing supply, the original purpose of the relief. In addition, investors making large bulk purchases already have other routes for reducing their tax charge. Anyone purchasing 6 or more dwellings can still choose to pay the lower non-residential rates.

Taking account of both the consultation and the external evaluation of MDR, the government’s view is that the relief no longer achieves its original aims in a cost-effective way and will introduce legislation to abolish MDR with effect from 1 June 2024. The government will engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.

2. Introduction

Background to the consultation in respect of mixed-property purchases

Mixed-property purchases are those that contain both residential and non-residential property, for example a high street building with a shop on the ground floor and flats above. The SDLT rules tax mixed-property purchases wholly at the lower non-residential rates of tax, even where only a small proportion of the property purchased is non-residential. This treatment can result in a tax charge that is misaligned with the underlying use of the land. It also provides opportunities for taxpayers to reduce their tax liability by, for example, seeking to add token amounts of non-residential property to what would otherwise be a purchase of exclusively residential property.

The consultation suggested potential changes to the approach to mixed-property in order to ensure fairer outcomes between those buying residential property and to reduce or eliminate the scope for incorrect claims and abuse of the rules. The consultation sought views on introducing a new apportionment method of calculation, in which mixed-property purchases would be charged to SDLT proportionately at the residential rates on the residential part of a purchase and at non-residential rates on the remainder. The method outlined in the consultation applied each land type’s nil rate tax band proportionately, ensuring that purchasers of mixed-property did not benefit from multiple nil rate tax bands when purchasers of either wholly residential property or wholly non-residential property are limited to a single nil rate tax band.

The consultation also sought views on an alternative approach to apportionment under which the government could introduce a threshold so that a purchase is only treated as mixed-property if the non-residential element is more than a certain proportion of the consideration, for example more than half. The consultation set out that the threshold chosen would need to be high enough to ensure that what amounted to residential transactions were taxed at the residential rates, and to also prevent attempts to unfairly reduce the SDLT payable on residential property by adding small or token amounts of non-residential land to residential purchases in order to tax the entire purchase as non-residential.

Background to the consultation in respect of multiple dwellings relief (MDR)

Ordinarily SDLT is payable on the total value of a transaction. However, where 2 or more dwellings are purchased in a single or in linked transactions, MDR may be claimed. MDR reduces the rate of SDLT payable on a transaction involving the purchase of multiple dwellings so that the SDLT is closer to that which would be payable had those dwellings been purchased in separate transactions from different vendors.

MDR was introduced in 2011 in response to representations from the property investment sector. The rules also allow individuals to benefit from the relief and this has led to a significant number of incorrect claims from individuals, often persuaded by boundary-pushing ‘tax repayment agents’, that parts of the new home they have bought count as a separate dwelling and that the purchase can benefit from MDR.

The number of such incorrect claims meant that it was not an efficient or effective use of HMRC resources to intervene into every single claim made, and the consultation proposed 4 legislative options to address the problem:

• Option 1 – would have allowed MDR only where all the purchased dwellings were to be used for a ‘qualifying business use’: ie for development, or as a source of rents

• Option 2 – would have allowed MDR for those purchased dwellings which were to be used for a qualifying business use, but not for those dwellings which were not to be used for such a purpose

• Option 3 – would have restricted MDR by introducing a ‘subsidiary dwelling rule’ consistent with that which already exists elsewhere in the SDLT rules, so that any dwelling which was subsidiary to another dwelling would not qualify for MDR

• Option 4 – would have allowed MDR only for purchases of 3 or more dwellings

In addition to seeking views on the 4 options above, the consultation also sought views on how MDR impacts on commercial decision making and on the supply of housing.

Whilst the potential options for reform to MDR as outlined in the consultation document have now been overtaken by the decision to abolish MDR in its entirety, the government thinks it nevertheless right to reflect the responses to the consultation. These are set out at Chapter 4.

3. Responses – mixed-property purchases

For mixed-property purchases, the consultation asked questions which were focused on:

• understanding the perceived advantages and disadvantages of the introduction of apportionment for mixed-property purchases
• seeking comments on the method of apportionment being proposed by the government, which was set out at Annex A of the consultation
• identifying any alternative solutions to the problem outlined

The key themes from the responses are summarised below. 

General comments by respondents

As well as responses to the specific questions asked in the consultation document, respondents offered general comments and suggestions about SDLT. Whilst many of these comments went beyond the scope of the consultation, they have nevertheless been captured for future consideration.

A response made by many was that the SDLT regime is already overly complex and that any new legislative measures need to be easy to understand and apply.

Several respondents thought that HMRC should continue to litigate and investigate cases rather than changing the rules in a way that would affect all purchasers and not just those who try to abuse the SDLT rules.

Some respondents thought that HMRC should better regulate tax repayment agents.

On mixed-property specifically, some respondents thought that apportionment would work to tackle abuse but considered that the cost of its introduction was too high, due to the impact it might have on businesses.

A few respondents said that apportionment would provide the fairest outcomes and would improve intergenerational fairness as those most likely to buy mixed-property will be older.

Question 1: What do you see as the advantages and disadvantages of apportionment?

Many respondents thought apportionment reasonable as it would remove incentives for abuse, be fairer, offer more logical outcomes, and avoid cliff edges. Many respondents also thought it a straightforward change as many are already familiar with the methodology proposed because of its similarity to existing apportionment provisions in other aspects of SDLT, for example in the 15% flat rate of SDLT and MDR. They noted that apportionment works in other areas of property taxation, for example in Capital Gains Tax.

Other respondents were concerned about the added complexity and felt that the need for valuation created by an apportionment rule would increase the scope for disputes and uncertainty. There was concern about negative impacts on the property market, by creating a reduced appetite for mixed-property purchases and some respondents thought that apportionment was unfair where the purchase of a dwelling was integral to a business purchase, for example in farming.

Question 2: What are your views on how the mixed-property rules interact with the other aspects of SDLT?

Many respondents welcomed confirmation that the rule treating purchases of 6 or more dwellings as non-residential property would continue to apply.

Some respondents thought that the current rules created unfair advantages because the Higher Rates on Additional Dwellings (HRAD) and Non-Resident Stamp Duty Land Tax (NRSDLT) surcharges do not apply to the residential elements of mixed-property purchases. Those respondents said that applying HRAD and NRSDLT under apportionment would correct those mis-matches and level the playing field.

Some respondents highlighted that the HRAD and NRSDLT rules would need to be carefully considered under apportionment to ensure that there were no unintended consequences. In particular, respondents pointed to the relief from the HRAD surcharge for replacing a main residence, calling for it to be retained under apportionment.

The SDLT legislation contains specific rules to deal with alternative finance arrangements and some respondents highlighted that these rules might need to be amended on the introduction of apportionment.

Some respondents felt that apportionment would complicate linked transactions.

Question 3: What issues would arise in particular for mixed-property purchases that included an MDR claim if apportionment was introduced?

Some respondents thought that few issues would arise for mixed-property purchases involving MDR claims because apportionment already exists for such cases. Others thought that apportionment would make MDR less attractive while some thought it would increase the numbers of MDR claims for mixed-property as many transactions which are currently treated as wholly non-residential would be subject to a higher overall rate of tax under apportionment, incentivising customers to claim MDR. There were concerns that the proposed method may lead to customers claiming that there are more dwellings than actually purchased, exacerbating the problems with MDR.

Question 4: What impact would apportionment have on both individual and business purchasers of mixed-property?

Some respondents felt that very few individuals would be affected as most individual purchasers of mixed-property would be buying for business reasons and would already have a good idea of relative values of the residential and non-residential property being bought.

Others felt that most businesses will already have detailed reports about the relative value of the residential and non-residential parts of the property. Some foresaw little impact so long as the rules were simple and fair and that professional valuations were not a requirement.

Some respondents felt that apportionment would become a ‘new normal’ that would be managed by a combination of price negotiation, market acceptance and marginal impacts on profits.

Other respondents saw apportionment as the best way to provide a stable and predictable outcome of a tax calculation, reducing the need for disputes and expensive litigation as well as reducing the risk to conveyancers of professional indemnity claims.

Others thought that apportionment would increase the cost, complexity and uncertainty for purchasers, and may deter purchases with some believing that individuals in particular would struggle to interpret and apply more complex rules and that increased costs would affect small businesses such as farms, pubs and shops with residential property. Furthermore, they thought that the introduction of apportionment would be a new area for dispute and challenge between purchasers and HMRC, and that apportionment would make it harder to submit an SDLT return and pay the tax within the time limit of 14 days leading to more late and amended returns being submitted.

Question 5: What impact would apportionment have on business transactions?

Some respondents suggested that apportionment would have little impact on business transactions as its already required for other SDLT purposes. Others saw no significant issues for genuinely commercial purchasers.

Some respondents felt that apportionment would reduce demand for mixed-property and that the impacts on individuals and smaller business purchasers would be greater. Others thought that for mixed-property purchases in connection with farming, apportionment would make properties with agricultural ties, which require the occupant of a property to be employed in agriculture, more attractive as a means of supressing the value of the residential property element of a mixed-property purchase.

Question 6: What impact would apportionment have on others involved in the purchase, such as tax practitioners, conveyancers and valuers?

Some respondents thought that apportionment might save time for tax practitioners where currently they have to undertake long analysis to see if a claim for mixed-property treatment is valid, and that apportionment would offer more certainty. Others considered that the proposed change would not create any significant additional administrative burden for advisors, conveyancers and valuers provided there is clear HMRC guidance. Since apportionment is already required for MDR and for the 15% flat rate of SDLT, some felt that extending it to mixed-property would have little impact, so long as the computations are simple and fair, and that professional valuation is not a requirement.

There was recognition that conveyancers would need to feel comfortable that they are being provided with the proper values and this is also true currently, for example with apportionments for chattels, and that unless a valuation is clearly wrong, conveyancers should be able to rely on the client or agent to provide values. It was also recognised that there may be a role for valuers in larger transactions.

There was concern about tension between vendors and purchasers because vendors may want to maximise the value of residential property in order to claim private residence relief for Capital Gains Tax while purchasers may want to minimise the residential element in order to reduce the SDLT payable.

Some respondents felt that the need to undertake a professional valuation would potentially extend the time to complete a purchase or cause a delay in paying SDLT post completion where the need for a valuation is only recognised at a later stage. There was concern about increased disputes between valuers and problems for conveyancers if a purchaser had not considered apportionment prior to completion.

Others thought that obtaining professional valuations would often be advisable for vendors selling mixed-property in order to establish the vendor’s Capital Gains Tax liability.

Question 7: What would the impacts be on purchasers of having to value both the residential and non-residential elements of a purchase?

Some respondents felt that there would be no issues arising from requiring a valuation of the residential and non-residential elements of a purchase as most mixed-property purchases were undertaken by experienced buyers, and that consideration of SDLT is often built into the modelling for a potential purchase. Others felt that there should not be undue impacts provided the rules are simple, fair and the process follows existing apportionment requirements as required elsewhere in SDLT. Some felt that sales agents would do a lot of the work for purchasers when preparing a property for sale.

Other respondents were concerned about additional professional fees, increased costs to less experienced businesses, and increased risk of getting it wrong.

Others worried about the risk of being unable to secure a professional valuation in the 14 days allowed to file the SDLT return, increased uncertainty about the ultimate liability and increased costs if a return is challenged.

Question 8: At what stage in a purchase could a purchaser expect to determine the relative values of the residential and non-residential elements of the property? For example, research, survey, consultation with a selling agent, or exchange.

A range of responses were received in respect of this question, with respondents suggesting values could be obtained at any point in the purchase process. Some suggested that investors would want to determine relative values earlier than business purchasers, and that purchasers’ sensitivity to tax would be a determinant in how early relative values were established.

Question 9: Do you agree that apportionment would discourage abuse and give more equitable outcomes in calculating SDLT?

There was agreement that apportionment should discourage the claims HMRC wishes to target but many respondents expressed the view that the cost to genuine transactions was too high. There was concern that apportionment could increase scope for abuse or change the nature of abuse, for example by moving to spurious valuations. Some thought that HMRC’s wins at tribunal would force tax repayment agents out of work.

Question 10: Looking at the information in Annex A, do you have an alternative method of calculation for apportionment that would be effective in discouraging incorrect claims that the purchase of residential property is actually of mixed-property?

Many respondents proposed an alternative method of apportionment whereby the non-residential element of a mixed-property purchase would be taxed proportionately while the residential element would be taxed in a way that gave it full, rather than proportionate, credit for the residential nil rate tax band. This alternative method would work similarly to the current rules for apportionments under MDR except that it would apply to single dwelling purchases as well as to multiple dwelling purchases.

Respondents who proposed this method said that it was preferable to the method set out at Annex A of the consultation because the Annex A method meant that purchasers would pay significantly higher amounts of SDLT than they do at present where only a small proportion of the purchase related to residential property. By effectively taxing the residential element of a mixed-property transaction first, it would mean that purchasers benefitted from the full residential nil rate band as well as the lower rates of non-residential SDLT. The purchaser would also be given the benefit of a proportionate amount of the non-residential nil rate band. For example, where a property was 60% residential and 40% non-residential, the purchaser would receive the entire residential nil rate band plus the benefit of 40% of the non-residential nil rate band.

Other respondents viewed the method proposed in the consultation as logical, effective and acceptable.

Other alternative treatments suggested included allowing non-residential taxation to continue where the residential element is a third or less of the total purchase; excluding farms where there is 5 or more hectares of land; and a threshold of 95% whereby a purchase would be taxed wholly as residential or non-residential where the composition was 95% one land type or the other.

Question 11: What would be the impact of allowing mixed-property treatment only for transactions that reach a particular threshold of non-residential property? What should such a threshold be and why?

The consultation suggested that as an alternative to introducing apportionment for all transactions a threshold could be introduced, whereby the existing mixed-property treatment would be retained where transactions consisted of a certain proportion of non-residential property, such as 50%. Some respondents thought the threshold alternative proposed in the consultation would be simpler to introduce than apportionment and easier for taxpayers to understand. Some were of the view that it would be effective at dealing with abusive cases of concern to HMRC. Others saw it as a simplification but one which would create unfairness if the threshold was set too high.

Alternative views were that a threshold would work if it was a monetary amount, rather than looking at the proportion of the transaction that was non-residential.

Some respondents felt that a 50% threshold was too high and that a lower proportion of non-residential land should be allowed to retain the existing treatment, with suggestions ranging from 5% to 20%.

Some acknowledged that a threshold would reduce complexity but thought it would be arbitrary and introduce a cliff-edge. Others felt a threshold would be open to abuse and manipulation.

Question 12: What do you see as the advantages and disadvantages of allowing mixed-property treatment only where a minimum proportion of the consideration is in respect of non-residential land?

Most respondents thought that this would minimise the effect of the change, remove some of the complexity of apportionment and would not require valuation in as many cases. Many respondents also said this would mean taxing some business transactions at the higher residential rates.

An alternative suggestion was to limit non-residential taxation to cases which have formal planning consent for a mix of uses under the Use Classes Order process.

Question 13: Do you have alternative proposals to the ones set out in this consultation which would be effective in discouraging incorrect claims that the purchase of residential property is actually of mixed-property?

There was widespread support for alternative method of apportionment outlined under Question 10.

Other alternative suggestions were a de minimis of £40,000 or 20% non-residential property, aligning with the Capital Gains Tax treatment, limiting non-residential taxation only to qualifying business use and exclusion of owner-occupiers from non-residential taxation.

There were suggestions that taxpayers should be required to specifically certify that they have understood the mixed-property rules, calls for greater taxpayer education about tax repayment agents, better HMRC guidance, and continued litigation.

Question 14: How do the rules for mixed-property feature in commercial decision making?

Some respondents mentioned that commercial purchasers will want certainty on SDLT before they buy and that the current rules make this easy.

Some expressed the view that SDLT is factored into the decision-making process in terms of affordability and modelling returns on investment and that it can be the deciding factor where the decision is finely balanced.

Some respondents thought that apportionment would encourage businesses to pay less for property or vendors to seek purchasers with larger budgets to accommodate an additional SDLT liability. Others felt that it might influence the price but not have a significant detrimental impact.

Some were concerned that apportionment would adversely affect the number of new, lower priced dwellings built, and therefore affect the supply of property in the private rental sector, potentially leading to increased rents. Other respondents thought that MDR was more of a factor in commercial decision making.

Question 15: What would be the impact of changes to the mixed-property rules for businesses that typically make purchases of both residential and non-residential land, for instance corner shops, bed and breakfasts, pubs? Please consider both change in the form of apportionment and a threshold.

Some respondents thought that changes to the mixed-property rules would reduce the number of disputes with HMRC on whether the property is mixed.

Some said that the impact would depend on whether the effective rate of tax on the dwelling is more than 5% (the top non-residential rate). If it is, the purchaser will try to split acquisitions to reduce the SDLT payable.

Some thought that apportionment may be harder where the demarcation and valuation split between business and private is not clear.

Government response

The government understands the need to balance concern about abuse and fairness with concern about increasing complexity in response. The government recognises the comments made by stakeholders that apportionment would be an administrative burden, including for those who are buying genuinely mixed-property and so not trying to unfairly reduce their SDLT. HMRC continues to have success in challenging spurious claims to mixed-property treatment. Therefore, on balance, the government has concluded that it will not currently be taking forward the introduction of apportionment for mixed-property purchases and no other changes to the rules for mixed-property are planned.

4. Responses – Multiple Dwellings Relief (MDR)

As explained above, whilst the potential options for reform to MDR set out in the consultation document have now been overtaken by the decision to abolish MDR, the government thinks it nevertheless right to reflect the responses to the consultation.

To recap, the consultation put forward the following potential options to tackle the abuse of MDR:

• Option 1 – would have allowed MDR only where all the purchased dwellings were to be used for a ‘qualifying business use’: i.e. for development, or as a source of rents

• Option 2 – would have allowed MDR for those purchased dwellings which were to be used for a qualifying business use, but not for those dwellings which were not to be used for such a purpose

• Option 3 – would have restricted MDR by introducing a ‘subsidiary dwelling rule’ consistent with that which already exists elsewhere in the SDLT rules, so that any dwelling which was subsidiary to another dwelling would not qualify for MDR

• Option 4 – would have allowed MDR only for purchases of 3 or more dwellings

In addition to seeking views on the 4 options above, the consultation also sought views on how MDR impacts commercial decision making and on the supply of housing.

The consultation asked a variety of questions in relation to MDR which were focused on:

• bringing out the perceived advantages and disadvantages of each of the 4 proposed options
• identifying whether there were any other solutions to the problem outlined
• seeking to understand the impact of MDR on commercial decision making and on the supply of housing

As well as responses to the specific questions asked in the consultation document, respondents offered general comments and suggestions about SDLT. These are set out in the ‘General comments by respondents’ section above.

In respect of MDR specifically, many respondents recognised that whilst any situation which allowed large numbers of spurious claims to succeed was unfair to the compliant majority, they thought that each of the 4 legislative options, to greater and lesser degrees, would introduce unfairness in taking MDR away from some claimants who were not seeking to abuse the rules. Respondents made the point that any legislative change should strike the best possible balance between removing the unfairness of the abuse of the current rules and minimising any negative impact on the compliant.

Options 1 and 2

Option 1 proposed allowing MDR only where all the dwellings purchased were to be used for any of 2 ‘qualifying business uses’, those being a property rental business and a property development business. Consistent with other SDLT reliefs, these options proposed that MDR would be conditional on the qualifying business use requirement being satisfied throughout a three-year post-transaction period, or until sale of the dwelling if earlier.

The rationale underpinning Option 1 was that by restricting MDR to purchases where all the dwellings are to be used for business purposes, incorrect claims by individuals purchasing their homes would be eliminated, whilst providing the simplicity that MDR could be claimed either on the whole purchase, or not at all.

Option 2 was a variation on Option 1. This option would also eliminate incorrect claims by individuals purchasing their homes, whilst also seeking to mitigate the ‘all or nothing’ consequence of Option 1 by allowing MDR to be claimed in respect of dwellings purchased for business use even if other dwellings purchased in the same transaction were not for business use.

The consultation document set out the following questions in relation to Options 1 and 2:

Question 16: What are respondents’ views on the introduction of an intention test? 

Question 17: What are respondents’ views on the application of the proposed three-year post-transaction period? 

Question 18: What impacts would Option 1 have on businesses?

Question 19: Do you foresee any issues with the proposed method of calculating the relief (under Option 2)?

Question 20: Are there any other types of property-related businesses purchasing residential property (and which support the aims of MDR) which should qualify for relief under Options 1 or 2?  

Question 21: What would be the impact of Options 1 and 2 on the structuring of commercial transactions involving the purchase of dwellings? 

Responses

Some respondents said that both Options 1 and 2 would focus the relief on the types of businesses that MDR was originally aimed at supporting. More generally, almost all respondents said that if either of these options was pursued, the types of business use to qualify for relief should be expanded beyond ‘property rental’ and ‘property development’; for example, to mirror those that qualify for relief from the 15% flat rate of SDLT. It was also suggested that Local Authorities and other social landlords, that are not businesses operating on a commercial basis with a view to profit, should continue to benefit from MDR.

Many respondents said that given that the misuse of MDR was chiefly by individuals buying their homes, if either Option 1 or Option 2 excluded any businesses that currently qualify for relief, the solution would go beyond what was necessary to address the known misuse. They said that businesses should not be disadvantaged because of the behaviour of some individuals.

There was a general consensus that Option 1, by denying relief unless all the purchased dwellings were to be used for a business purpose, would be unfair as one property could taint the availability of the relief for the whole transaction, even if it was predominantly for business use. Some thought that this option might encourage purchasers to artificially split transactions to facilitate a claim to MDR and that whilst the linked transaction rules act to prevent this, it may create another opportunity for abuse which HMRC would need to police.

Some respondents thought that ‘intention tests’, which look at future or intended use of the property, are inconsistent with a transaction tax and that the charge to, and reliefs from, SDLT should have the clarity and finality of being based on the state of affairs at the date of purchase. As with other intention tests, a three-year clawback period would create uncertainty as to the ultimate amount of SDLT payable and, for some purchasers, would add additional costs and compliance obligations as they would need to monitor and record how the properties were used throughout that period.

Most respondents thought that these options would add unnecessarily to the complexity already present in the SDLT legislation. One respondent suggested that complexity in the legislation could be reduced if there was a standard ‘business use’ test across the SDLT statute so that any property used ‘wholly and exclusively’ for a business purpose would be treated as business property. Other respondents said it would be unfair if only business purchasers could qualify for MDR, which would be a consequence of either of these options.

In relation to Option 2, although respondents thought that allowing MDR for those dwellings that were to be used for a qualifying business use would resolve the unfairness issue, they said that all the other issues referred to in relation to Option 1 would apply to Option 2.

Respondents also pointed out that where only some of the purchased dwellings are to be used for a qualifying business use, it would be necessary to attribute proportions of the total consideration accordingly. Some thought that this would add to the costs and compliance burden for claimants and create scope for disagreements and challenges around valuations. Other respondents said that although this option added some additional complexity, because apportionment already exists within the MDR rules it would not be a major problem.

Again, in relation to Option 2, the point was also made by respondents that where during the three-year clawback period any property ceased to be used for a qualifying business purpose, so that relief for that property is lost, further apportionments or re-apportionments would be needed, adding additional complexity and further scope for disagreement between purchasers and HMRC on the apportionments that should be used.

In relation to the method of calculating the tax attributable to any non-qualifying dwellings under Option 2, respondents expressed similar concerns to those raised for the mixed-property measure, saying that those dwellings would disproportionately attract tax at the rate that applies to the whole consideration. Respondents said that if Option 2 was taken forward, it would need to be supported by a robust HMRC calculator to help purchasers and conveyancers to get the tax right.

Option 3

The consultation document explained that there is an existing rule within the HRAD legislation which applies to purchases by individuals whereby a ‘subsidiary dwelling’ within the grounds of, or same building as, another dwelling is not counted as a separate dwelling for the purposes of HRAD. A dwelling is subsidiary to another dwelling (the primary dwelling) if the value of that other dwelling is two-thirds or more of the amount paid for all the dwellings within the same grounds or building.

Option 3 in the consultation document proposed a similar test, to apply to both non-business and business purchasers, so that a dwelling within the grounds or building of another dwelling would not count as a separate dwelling for the purposes of MDR unless its value is a third or more of the total price attributable to the properties as a whole.

The rationale underpinning this option was that whilst the current definition of a dwelling includes ‘part of a building that is suitable for use as a single dwelling’, the addition of ‘a one third of the value’ test for MDR is expected to be sufficiently high to stop the majority of incorrect claims to MDR. The expectation was that it would be difficult to argue, for example, that a bedroom with an en-suite is valued at a third or more of the property as a whole. This option would also correct an inconsistency in the SDLT rules which allows a building or part of a building to be treated as a dwelling for MDR purposes while not treating it as a dwelling for HRAD.

The consultation asked the following question in relation to Option 3:

Question 22: Does Option 3 introduce any other impacts on business?

Responses

Overall, Option 3 was the most favoured option by respondents. Many said that Option 3, with some modification, would have provided the most elegant, simple, proportionate and fair response to the problem. This option, they said, would limit the impact on legitimate claimants, particularly businesses, and would resolve an existing inconsistency in treatment between the MDR and HRAD rules.

A number of respondents highlighted that the mis-match between those 2 regimes effectively relieved purchasers twice; once by not including a subsidiary dwelling as a separate dwelling for the charge to HRAD, and again by allowing that same subsidiary dwelling to count as a separate dwelling for the purpose of MDR. A common response was that any dwelling relieved from HRAD should not get MDR as well. It was considered that a change to the legislation to remove this inconsistency would lead to greater consistency and symmetry in the rules overall. Some thought that such a rule should have been introduced at the same time as the ‘subsidiary dwelling’ rule was introduced in HRAD.

A small proportion of respondents were concerned that in relation to MDR, a requirement to consider whether a dwelling within the grounds or building of another dwelling was subsidiary to it would add to the compliance burden. However, as other respondents stated, the HRAD rules already require purchasers to consider this, so there would be no additional compliance burden.

Some respondents thought that disqualifying subsidiary dwellings from MDR would impact unfairly where the purchase is liable to HRAD. Companies, for example, would be subject to HRAD but could be locked out of MDR. Respondents thought that a modification to Option 3 to the effect that a dwelling that is not liable to HRAD should not qualify for MDR would resolve that perceived unfairness.

Some respondents said that Option 3 would mean some purchasers would get MDR whilst others would not, depending on the value of any secondary dwelling. This, it was said, could deter purchasers from buying some properties. Other respondents made the point that the same ‘one third’ rule already meant that some purchasers have to pay HRAD and others do not, and that a ‘if it’s liable to HRAD it is eligible for MDR’ rule would level the playing field.

Respondents were generally of the view that Option 3 would have the least negative impact on individuals, although some thought this may lead to some purchasers manipulating property values.

Option 4 – Allow MDR only for purchases of 3 or more dwellings.

Option 4 proposed allowing MDR only for purchases of 3 or more dwellings. Of the 4 options proposed, this would be the simplest legislative change. The rationale for Option 4 was that those who might be persuaded that their home is 2 dwellings, as opposed to one, would be less prepared to be persuaded that it constituted 3 separate dwellings.

Responses

Overall Option 4 was the least favoured by respondents. Whilst many respondents acknowledged its simplicity, they thought it would impact negatively on some businesses who often purchase 2 properties at a time, particularly smaller businesses operating in the private rental sector. Those businesses would be taxed at a higher rate on the purchase of 2 dwellings than on the purchase of 3 dwellings, even where the intended use is the same.

Whilst this option would be effective in dealing with the problem of individuals contending that the purchase of a new home consisted of 2 separate dwellings, it would nevertheless be a ‘blunt instrument’ that would introduce a ‘cliff-edge’ and unnecessarily impact on business purchasers.

Most respondents thought this option would have reduced the majority of incorrect claims, however some thought it may still leave scope for purchasers to misuse the rules, although it was accepted these cases would likely be very few in number.

Questions about all the MDR options

The consultation then sought respondents’ views on a broader set of questions.

Question 23: What do you see as the advantages and disadvantages of each of the options set out above?

The responses to question 23 are incorporated into the summary of responses in respect of each of the options above.

Question 24: Are there any other solutions to the problem described above not covered by the options in this consultation and which would, in your view, tackle the problem more effectively and efficiently?

In relation to question 24, whilst many respondents had no alternative solution to offer, others made the following suggestions:

• some respondents said that a combination of options might work. For example, Option 1 or 2 combined with Option 3, the effect being that any purchaser not intending to use a dwelling for a business purpose cannot claim MDR on any subsidiary dwelling. However, there were concerns that combining the options would introduce unnecessary complexity

• others thought that the definition of a dwelling should be clarified in the legislation

• a number said that given HMRC’s successes in challenging spurious claims, there should be no legislative change and that HMRC should continue to challenge incorrect claims case-by-case

• in general, respondents could not offer any alternative solutions to the problem other than those presented

Properties purchased to include at-home care for individuals in need of additional support

The consultation also sought views on the extent to which any of the options would have a material impact on the purchase of properties to include at-home care for persons in need of additional support. The consultation posed the following question:

Question 25: Would options 1, 2 and 4 have any material negative impact on the purchase of property which contains, for example, an annex which is intended to provide accommodation to an aged or vulnerable person, typically a relative? If so, would Option 3, either alone or in combination with the other options, present a solution to this negative impact?

As well as engaging with a wide range of industry professionals and representative bodies, officials also sought input from organisations who work with or assist those who require additional support, and representatives of HMRC’s ‘Additional Needs Working Group’, the focus being to better understand the extent to which these changes impact on these types of living arrangements.

Responses

The general view of respondents was that the absence of MDR would probably not deter those who intended to give at-home care from doing so.

Respondents thought that if somebody is going to care for an elderly or disabled relative it was most likely that they would be brought to live within the existing family home. Looking for a property with an existing annex that constitutes a separate dwelling would significantly limit choice.

Many respondents said that when making a decision to purchase a property, MDR is rarely a factor and often not even known about when that decision is taken.

Questions concerning MDR more generally

The government also wanted to understand how MDR, including its interaction with the ‘6 or more rule’ (which allows purchasers to pay the lower non-residential rates of SDLT where they purchase 6 or more dwellings), feature in commercial decision making and the supply of houses for both rental and purchase. The consultation asked the following questions:

Question 26: How does MDR feature in commercial decision making? 

Question 27: To what extent does the availability of MDR impact purchasing decisions where the 6 or more rule applies? 

Question 28: To what extent does MDR currently impact on the supply of housing for both rental and purchase?  

Most respondents said that the SDLT saving MDR provides can be significant, particularly for purchases involving a large number of units (for example a block of flats, or a build to rent development). A common view expressed was that the vast majority of multiple dwelling transactions involve fewer than 6 dwellings. One respondent said that because private landlords typically have small property portfolios, they are less likely to acquire multiple dwellings in a single transaction. Consequently, they are unlikely to claim MDR.

Many respondents said that MDR is an important relief for social landlords acquiring dwellings from private developers and that absent MDR their cost could increase and the supply of social housing decrease. Other respondents pointed out that the introduction of HRAD and the NRSDLT surcharge have increased the tax liability for some and diminished the benefits of MDR. This, it was said, may have impacted some investment decisions, although the ‘6 or more’ rule still provides a significant saving for purchases of 6 or more dwellings.

Other respondents pointed out that for the vast majority of individuals intending to buy property for domestic purposes, the amount of SDLT which applies to the transaction flows from their own personal circumstances and the suitability of the property they are purchasing, and that MDR is not a consideration.

Respondents made the point that costs inevitably have a bearing on commercial deals and that MDR is a factor in bidding and offering on new projects. A view expressed by respondents who operated in the commercial environment was that for commercial purchases it is the viability of the transaction as a whole that is most important. The cost of acquisition versus the return on investment is the key consideration and the make-up of those costs will include different components, only one of which is SDLT. Two particular points were made; first that commercial purchasers tend not to consider the availability of MDR but rather consider what the overall cost of SDLT is for the transaction as a whole; second, that because commercial decision makers take into account all of the attendant costs, whilst SDLT is a factor, it is not on its own the deciding factor.

Another respondent said that in their experience businesses often buy based on suitability for letting and the availability of properties, rather than basing their decision to buy on the tax position.

One respondent thought that MDR does not currently have a significant impact on the supply of housing for rental and purchase. If MDR was unavailable it could result in acquisitions of large buildings being too expensive for many purchasers. However, the proposition was expressed that if MDR was not available, vendors would either seek purchasers with larger budgets, or otherwise reduce the selling price.

One respondent suggested that MDR has a regional bias in that it was more advantageous in areas where house prices are lower.

In relation to the ‘6 or more’ rule responses here were straightforward in that purchasers will calculate whether the ‘6 or more’ rule or MDR provides the greatest benefit and make their claim accordingly. Respondents said that the ‘6 or more’ rule does inevitably reduce the number of MDR claims, but MDR is still an attractive relief. Respondents considered that a claim to MDR is not worth considering where 6 or more dwellings are purchased, unless the average price per dwelling is low. One respondent said the tipping point is where the average value is around £300,000 per dwelling.

Government response

The government appreciates the responses received and is grateful for the time taken by those who contributed to the consultation.

The government is committed to monitoring the effectiveness of tax reliefs, including those within the SDLT framework. In addition to the consultation, the government approved an external evaluation of MDR in February 2023, as part of HMRC’s Tax Relief’s Evaluation Programme. The results of that evaluation have been published with this summary.

The government’s view is that MDR is not cost effective in achieving its policy aims and is also often subject to abuse. The evaluation shows that 51% of MDR claims come from individuals purchasing residential properties for personal use only and that the majority (73%) of private individuals said that MDR had little or no influence on their decision to purchase. The costly provision of MDR to individuals does not support investment in the private rented sector, the relief’s intended purpose.

The evaluation also suggests that removing relief from business purchasers is unlikely to have substantial effect on the market, highlighting the limited impact that MDR has on encouraging investment in residential property. Only 32% of businesses buying property to let in the PRS said the relief had an important influence on their decision to purchase and only 45% were aware of MDR before making a purchase decision.

The government has also carefully considered the impact of the loss of MDR on those purchasing dwellings to be used for at-home care. Assessment of the responses to the consultation, coupled with the evidence from the external evaluation of MDR, suggests that the impact of the proposed change should be minimal on this group. The government’s view is that overall, removing the relief will not have a material impact on these living arrangements.

The government no longer considers that MDR represents a cost-effective way of supporting investment in residential property and the private rental sector and has decided to introduce legislation to abolish the relief. The government will engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.

5. Tax repayment agents

The government also notes the concerns raised by respondents about the behaviour of some tax repayment agents and the impact this has on client/agent relationships. In June 2022, the government published the consultation document ‘Raising standards in tax advice: Protecting customers claiming tax repayments’ to tackle the issues relating to repayment agents and look at ways to better protect customers.

Following the 2022 consultation, HMRC has taken steps to protect taxpayers who claim reliefs and allowances via a third party. This includes:

• at Spring Budget 2023, the government announced legislation to render void the assignment of income tax repayments. The legislation is now in force and HMRC no longer accepts assignments of income tax repayments

• introducing expectations of transparency in the HMRC Standard for Agents, updated in January 2023, to ensure customers are made aware of the agent’s fees and charging structure

• undertaking further work to strengthen the evidence that a claim has been made with a customer’s consent

• on 30 October, HMRC announced that from 26 February 2024, those who submit PAYE repayment claims have to provide their Agent Reference Number on the claim form. Failure to do so will result in the repayment for valid claims being paid directly to the taxpayer, not the agent as the nominated third party

In addition, and to assist property purchasers, HMRC has published online advice to warn purchasers about the dangers around cold calls from rogue tax repayment agents advising them to make speculative SDLT refund claims, which could leave them with large tax bills.

6. Next steps

Mixed-property

The government will not introduce apportionment for mixed-property purchases at this time, and no other changes to the mixed-property rules are planned.

Multiple Dwellings Relief

The government will introduce legislation in Finance Bill 2024 to abolish MDR. For contracts which exchanged on or before 6 March 2024 (Spring Budget 2024), MDR will continue to apply, even where completion of the purchase takes place on or after 1 June 2024. This is subject to there being no variation of the contract after 6 March 2024. MDR will also continue to apply to contracts which substantially perform before 1 June 2024.

Annex A: List of stakeholders consulted

Association of Tax Technicians (ATT)

BDO LLP

Blick Rothenberg Ltd

British Property Federation (BPF)

Burgess Salmon

Central Association of Agricultural Valuers

Charles Russell Speechlys

Chartered Institute of Taxation (CIOT)

Cornerstone

Country Land and Business Association (CLA)

Deloitte LLP

DWF Law LPP

Ernst & Young LLP

Forsters

Grainger plc

Grant Thornton UK LLP

ICAS

Institute of Chartered Accountants in England and Wales (ICAEW)

Intergenerational Foundation (IF)

KPMG LLP

Legal & General Group Plc

Lexgreen.com

London Society of Chartered Accountants

Memery Crystal

Mishcon de Reya LLP

Moore Kingston Smith LLP

National Farmers Union (NFU)

Oldfield Advisory LLP

Price Waterhouse Coopers LLP (PWC)

Relatus Ltd

Representatives of HMRC’s Additional Needs Working Group

RSM UK Tax and Accounting Limited

Shakespeare Martineau

Stamp Taxes Practitioners Group (STPG)

Stampback Ltd

STEP

Stockton Flats

The Law Society

In addition, 3 individuals responded to the consultation.