Research and analysis

Stamp Duty Land Tax Relief for Multiple Dwellings Process Evaluation Qualitative findings

Published 6 March 2024

Contents

Glossary and abbreviations

Executive summary

1. Methodology

2. Characteristics of Multiple Dwellings Relief Claimants

3. Business Claimants

4. Private Individual Claimants

5. Conclusions

Evaluation conducted by Ipsos among HMRC customers in 2023. Report prepared by Ipsos for HMRC.

Disclaimer: The views in this report are the author’s own and do not necessarily reflect those of HM Revenue and Customs.

Acknowledgements

The research team would like to thank all participants who gave their time to participate in this evaluation. We would also like to thank the HM Revenue and Customs research team and the HM Treasury policy team for their guidance and support during the evaluation and analytical process.

Glossary and abbreviations

Businesses	Business claimants were defined as those which used or planned to use dwellings for business purposes only (including renting out, property development, shared ownership and all uses other than those listed as personal use).

Buy to Let	Properties which are bought for the purpose of renting out to tenants.

Build to Rent (BTR)	Purpose-built housing intended for rent rather than sale. Schemes usually offer longer tenancy agreements and are often professionally managed by the owner or operator.

Higher Rates for Additional Dwellings (HRAD)	A higher rate of SDLT applies to purchases of additional residential properties by individuals (such as second homes or buy to let properties) and to purchases of residential properties by companies. Introduced in 2016, it applies an additional 3% on top of the standard residential rates of SDLT.

Linked transactions	HMRC counts transactions as linked if: there is more than one transaction; the transactions are between the same buyer and seller, or between people connected with either of them; the transactions are part of a single arrangement or scheme or part of a series of transactions.

Multiple Dwelling Relief (MDR)	A relief available from SDLT on purchases of 2 or more dwellings in a single transaction, or in linked transactions. Under MDR the minimum rate of SDLT payable is 1%. This is known as the “1% rule”.

Private individual Claimants	Private individual claimants in this report are defined as those who used, or planned to use, the dwellings for personal use only (including personally living in them, being lived in by family, used as a second home/holiday home, let without charge or used as a space for visiting friends and family).

Six or More Rule	Purchases of six or more residential properties in one transaction are treated as a non-residential purchase for SDLT purposes. The top rate of non-residential SDLT is 5%, while the top rate of residential SDLT can be up to 17% if surcharges apply.

Stamp Duty Land Tax (SDLT)	Stamp Duty Land Tax is the tax paid by purchasers of property or land over a certain price in England and Northern Ireland.

Executive summary

Background and methodology

Stamp Duty Land Tax (SDLT) is currently charged on property transactions in the UK where the value is above £250,000 for residential properties, £425,000 for first time buyers buying a residential property worth £625,000 or less and £150,000 for non-residential land and properties. SDLT is a progressive tax, with higher tax bands for more expensive properties. Different rates apply to residential and non-residential (commercial) purchases.

Multiple Dwelling Relief (MDR) was introduced in 2011. The relief ensures that when multiple residential properties are purchased in a single or in linked transactions they attract a similar amount of SDLT as they would if they had been purchased separately. To illustrate, without MDR a bulk purchase of four properties for £400,000 each would incur SDLT on the full £1.6 million transaction value. If the properties were instead purchased separately, the purchaser would pay SDLT on £400,000 four times over, meaning they benefit from multiple nil and lower-rate bands and pay less SDLT overall. The aim of the relief was to promote investment in residential property, to increase the supply of property for rent in the private rented sector.

This report provides findings from the qualitative strand of a mixed-methodology process evaluation of Multiple Dwelling Relief (MDR). This study was comprised of 2 phases. Phase 1 comprised 10 stakeholder interviews with representatives from the property industry. Phase 2 comprised 30 interviews with MDR claimants, both private individuals and businesses.

Key Findings

Characteristics of MDR claimants

MDR claimants in our sample, or identified by stakeholders, were large investment funds, property developers or private individuals. Business claimants had purchased property to rent out (as long-term lets in the Private Rented Sector or short-term holiday lets) or sell on. Private individual claimants had purchased properties to live in. In our sample this was as a primary residence.

Business claimants - awareness and understanding

Business claimants in our sample who were aware of MDR found out about it through their own research or their professional experience in law or accountancy. Some smaller, passive property investors were unaware of MDR until they were told about it by their solicitor during conveyancing on an MDR eligible transaction.

Business claimants reported that awareness of MDR is uneven amongst property professionals (for example, estate agents and conveyancing solicitors). This was seen as leading to uneven awareness amongst purchasers, which can lead to those not aware of MDR paying higher Stamp Duty Land Tax (SDLT). Another consequence of this uneven awareness was delays or errors in applying MDR.

This claimant group had a clear understanding of the purpose and aims of MDR and how it is implemented. They were able to accurately describe the aim of MDR as being to stimulate investment in the private rented sector and the outcome of the relief being to ensure purchasers paid the same amount of SDLT as they would have if they had purchased each dwelling individually. They also demonstrated clear understanding of the requirement to link transactions of dwellings purchased from the same developer / owner.

Business claimants - outcomes and proportionality

For business claimants, decision making about purchases was driven by cost and how profitable the investment would be. Amongst investors of all sizes, MDR was reported as being a factor in the overall assessment of cost, not the sole driver of decision making. MDR was reported to have increased the likelihood of a particular transaction proceeding by reducing the costs, therefore increasing profitability.

Without MDR, business claimants reported that they would make lower offers for MDR eligible dwellings, to offset the higher SDLT and bring the total investment cost to a level they felt was profitable. Stakeholders reported that large, institutional investors were likely to be purchasing more than six properties at once and would use the commercial rates under the ‘Six or More’ rule. However, mid-sized or smaller investors in this sample were unlikely to be purchasing this many properties in one transaction so would not be eligible to apply commercial rates. Investors reported that increasing costs brought about through inflation and the changing regulatory environment risked off-setting the benefits of MDR.

The process of making a claim for MDR was managed by the claimants’ solicitor or lawyer. The claim process was seen as being straightforward.

In determining outcomes of MDR, it was clear that MDR played a role in decision making for this group, as would any measure which reduced the overall costs of purchasing a dwelling. However, it was not the sole determinant of a decision and the benefits of MDR were set against the wider context in what was perceived to be a challenging environment for investment. Evidence from interviews with claimants and stakeholders suggests that MDR had least impact on small investors purchasing mainly 1 property at a time or particularly large investors purchasing large numbers of dwellings from the same developer (as they would use the commercial SDLT rates).

MDR was seen as correcting the impact of requiring transactions to be linked. Therefore, it was seen by this audience to be appropriate.

Private individual claimants - awareness and understanding

Private individual claimants in this sample had purchased dwellings to live in. The motivation for purchasing these dwellings was to provide care for family members; a separate dwelling for a carer; to help children on to the property ladder or because they liked the property.

In our sample, only one private individual claimant was aware of MDR before making their decision about which property to purchase. Otherwise, private individual claimants interviewed found out about MDR during conveyancing, from the estate agent or solicitor, or after moving into the property. These participants received direct mail informing them of MDR or read about it in the media.

Reflecting the low awareness of MDR among this group, there was a strong theme of the relief being an unexpected benefit, rather than a driver of a purchase decision.

Private individual claimants - outcomes and proportionality

The claims process was reported to be straightforward. Those who claimed MDR, rather than having it deducted before paying SDLT, reported that they received the funds more quickly than expected.

There was little evidence that MDR had influenced purchase decisions for private individuals, though they reported that they would be more likely to consider an MDR eligible property in the future.

Private individual participants who had purchased an MDR eligible property to enable them to provide care for a family member felt that it was appropriate that they could pay the equivalent SDLT as if they were buying the properties separately. Those who had purchased a property out of preference appreciated the relief, but it had not affected their decision-making.

1 Methodology

1.1 Evaluation context

Stamp Duty Land Tax (SDLT) is currently charged on property transactions in the UK where the value is above £250,000 for residential properties, £425,000 for first time buyers buying a residential property worth £625,000 or less and £150,000 for non-residential land and properties.

Before December 2014, SDLT was a “slab tax”, with purchases taxed at a single rate determined by the purchase price. In December 2014, residential SDLT was reformed to a “slice” structure, meaning each rate now only applies to the portion of the property price that falls within each band. SDLT is now a progressive tax, with higher tax bands for more expensive properties. Different rates apply to residential and non-residential (commercial) purchases.

Multiple Dwelling Relief (MDR) was introduced in 2011. The relief ensures that when multiple residential properties are purchased in a single or in linked transactions, they attract a similar amount of SDLT as they would if they had been purchased separately. To illustrate, without MDR a bulk purchase of 4 properties for £400,000 each would incur SDLT on the full £1.6 million transaction value. If the properties were instead purchased separately, the purchaser would pay SDLT on £400,000 four times over, meaning they benefit from multiple nil and lower-rate bands and pay less SDLT overall. The aim of the relief was to encourage investment in residential property, particularly the private rented sector.

From April 2016, the Higher Rate for Additional Dwellings (HRAD) surcharge was introduced. This is a 3% surcharge on the purchase of additional residential properties purchased for £40,000 or more by individuals and on the purchase of any residential property by companies. This is applicable to both buy to let investments or multiple homes.

The ‘six or more’ rule allows purchases of 6 or more residential properties in one transaction to be treated as a non-residential purchase for SDLT purposes. The top rate of non-residential SDLT is 5%, while the top rate of residential SDLT can be up to 17% if surcharges apply.

HMRC records showed an increase in the use of MDR. Ipsos UK Public Affairs was commissioned to conduct a qualitative evaluation of the type of purchasers which are using the relief, the types of transactions the relief is being used for, why and what impact this is having on the property market.

1.2 Evaluation aims

This evaluation has comprised the qualitative strand of a mixed-methodology process evaluation of MDR. The evaluation addressed the following objectives:

Implementation:

1. The types of purchasers who are claiming MDR

2. The types of purchases which MDR is being used for

3. The extent to which the conditions of the scheme are seen as being fit for purpose

Outcomes and proportionality:

1. The extent to which MDR is achieving its objectives

2. What impact participants see MDR as having on the property market

3. What impact participants see changing property market conditions having on use of MDR

1.3 Methodology

This study was comprised of two phases. Phase 1 comprised stakeholder interviews with representatives from the property industry. Phase 2 comprised interviews with MDR claimants, both private individuals and businesses.

Sampling and recruitment

In phase 1, 10 interviews were conducted with industry representatives. Four stakeholders were from representative bodies and six from professional services firms which regularly work on MDR transactions. Contact details for potential participants were passed to Ipsos UK by HMRC. Ipsos emailed Stakeholders inviting them to take part in an interview.

In phase 2, claimants were sampled from a survey of MDR claimants run for HMRC by the research agency IFF Research. Contact details for existing claimants of MDR who completed the survey and consented to have their contact details shared with Ipsos and to be contacted for the follow up qualitative interviews were passed to Ipsos UK by IFF. Ipsos invited specific contacts to the interviews who met the quotas for the study to the interviews.

Fieldwork

Ipsos conducted 10 stakeholder interviews between 15 February and 6 March 2023. The 30 claimant interviews were conducted between 16 May and 6 June 2023. Interviews were conducted using Microsoft Teams and lasted 45 to 60 minutes. For claimant participants, a donation of £70 to a charity of the respondent’s choice or as a shopping voucher was offered to thank participants for their time and contribution to the evaluation.

2 Characteristics of Multiple Dwellings Relief Claimants

This chapter describes the types of purchasers using MDR and the types of purchase and property it was being applied to. This chapter draws on findings from stakeholder interviews and interviews with private individual and business claimants. The stakeholder and claimant interviews identified 2 broad types of claimants: businesses and private individuals. In this qualitative sample, all private individuals who had purchased property to rent were registered as businesses.

2.1 Characteristics of businesses

Findings for this audience draw on stakeholder interviews and claimant interviews. Business claimants comprised: large investment funds and property developers, ranging from small to large. Smaller property developers could be characterised as active or reactive, that is actively pursuing business opportunities or taking a more passive, reactive approach. In relation to MDR, small, active property developers acted very similarly to medium or large property developers whilst small, reactive property developers behaved more like private individual claimants.

Large institutional investors

Stakeholder interviews reported that large institutional investors were investment funds such as pension funds. This group included UK and overseas investors. They were investing in the UK property market as part of their overall portfolio because it was seen as offering stable investment returns. They were purchasing large volumes of dwellings to rent out in the private rented sector, often off-plan or in development. Purchase decisions amongst this group were reported by stakeholders to be driven by potential rental yields and long-term return on investment.

Stakeholders reported that projected yields and return on investment were calculated using detailed financial models. These factored in all financial elements of the investment, sometimes including local economic data such as employment rate to understand how stable the local rental market was likely to be. For this group, MDR is part of the data used to model the long-term Return on Investment (ROI).  However, stakeholders reported that, given the complexity of models used and the numerous variables which were factored into decision making, MDR was unlikely to be the solely determining factor.

“A property investor…It could be a pension fund, it could be private equity …. It will be commercial decisions based on what they think the returns are going to be in a particular jurisdiction, from a particular project, and what their appetite is for more speculative development versus very cautious, very safe development.” Professional Services Firm

Medium, large or small, active property developers

This group was comprised of property developers, purchasing property either to rent in the private rented sector, as holiday homes or to sell. They were diverse in some characteristics, for example, operating in different parts of the country and ranging from having 1 or 2 employees to over 100. They were united by actively seeking to grow their business and therefore regularly purchasing properties. These participants reported that conditions in the property market at the time of fieldwork were making their business operations more challenging. Operating costs had increased due to higher interest rates, tax changes and forthcoming regulation. This group also expressed concerns about proposed regulation which would affect the rental market and the potential for interest rates to increase further.

Small, reactive property investors

Small, reactive property investors were individuals who had registered a business for the purpose of running their property investments. They rented properties out in the private rented sector or as holiday lets. These businesses were run by one person who made all investment decisions. Co-Directors, if there were any, were other members of their family.

Whilst registered as businesses this group behaved more like private individuals when making purchasing decisions than other investors. In comparison to the other types of property investor in this sample, they made property purchases relatively infrequently and it was rare for them to purchase multiple dwellings in one transaction. In addition, they tended to make investment decisions based on their local knowledge rather than financial data. This group had been unaware of MDR at the point of making the purchase.

The view from stakeholder interviews was that the small, investment landlord population was active though they were seeing more divestment than investment at present. Stakeholders reported that this was driven by uncertainty about regulatory environment changes; higher property prices; wider tax changes and the Higher Rates for Additional Dwellings surcharge. Stakeholders reported seeing an increase in small landlords buying as a limited company to mitigate against some of the tax changes which applied to the sector.

2.2 Characteristics of private individual MDR claimants

Private individual purchasers were buying properties with additional dwellings on one site. As may be expected, and as the quantitative survey found, the purchase price for these dwellings was usually above the average UK house price. The sample was drawn from purchases made between January 2019 - 2020. Within our claimant sample, all private individuals had purchased the dwelling they claimed MDR for as a primary residence and were first / sole time users of MDR. The Stakeholder interviews identified that this type of claimant also purchased a dwelling which they claimed MDR on as an additional residence, such as a second home.

The types of properties MDR was claimed on by private individuals included: a main property with an additional separate dwelling; multiple dwellings on the same land; 2 linked properties with an interconnecting door; a main property with an attached annexe or converted garage or extension; a former house which had been converted into flats at the time of purchase.

Stakeholders highlighted private individual use of MDR as an area which was growing, noting that it provides the opportunity to make a considerable saving on the SDLT due if the criteria are met. Stakeholders reported that private individuals are likely to be buying 2 dwellings of very different values rather than similar values, the average calculated for MDR can result in the SDLT due being reduced. (If the average SDLT due on both properties brings the property into a lower SDLT band, this would reduce the SDLT due.)

For private individuals, the motivations for purchasing a property were personal and arose from need or desire. The following themes were identified as motivations for purchasing a dwelling which MDR was claimed on:

• to enable the purchaser to provide care to a family member (elderly parents, child or partner with disabilities and care needs)

• to provide accommodation for grown up children

• they liked the property and it was within their budget

3 Business claimants

This chapter covers business claimants’ experiences of the implementation and outcomes of MDR and their perceptions of the appropriateness of the relief.

3.1 Implementation of MDR

3.1.1 Awareness of MDR

Business claimants found out about MDR through research, professional experience or from advisors. Active property investors were conducting research into the tax implications of property investment as part of their role, to ensure that they were maximizing the potential financial gains available to them. Larger organizations were also reviewing announcements made in the Budget to see what applied to them or had specialist tax advisors who kept them up to date on changes to SDLT (and other taxes).

Reactive, or passive, investors either knew about MDR through their own professional background as a solicitor or accountant or did not know about it at the point of making the purchase decision.

Interviews with business claimants demonstrated that there was uneven awareness of MDR amongst estate agents, solicitors, accountants and conveyancers. Stakeholder interviews also highlighted this.

The consequence was uneven awareness of MDR amongst claimants. Business claimants felt that there would be many purchasers like them which were unaware of MDR. Uneven awareness of MDR was seen to disadvantage these purchasers.

Business claimants also reported uneven awareness of how to apply MDR amongst conveyancers and solicitors. This led to delays in claims being processed accurately and additional work for the claimant.

3.1.2 Understanding of MDR

Business claimants demonstrated strong understanding of the purpose and aims of MDR and how it is implemented. They were able to accurately describe the aim of MDR as being to stimulate investment in the private rented sector with the outcome of the relief being to ensure purchasers paid the same amount of SDLT as they would have if they had purchased each dwelling individually. They also demonstrated clear understanding of the requirement to link transactions of dwellings purchased from the same developer / owner.

“My understanding is it’s to try and encourage people or landlords or property investors or people who are looking to fit housing or homes…to kind of help them buy properties at a better rate.” Property development/rental business, 10 to 24 employees, East of England

“You look at the number of properties you’re buying and you average it out. I bought a block of flats, 9 flats, and you just average it…It means you’re getting a fair rate of stamp duty…you’re saying that I’m not actually buying one block of 9 but you’re buying 9 separate flats.” Rental business, 1 to 4 employees, North West

3.1.3 Role of MDR in decision-making

Institutional investors

Findings on institutional investors are drawn from the stakeholder interviews. Stakeholders reported that, at the time fieldwork was conducted, they believed that institutional investors would be making fewer MDR claims. This was due to a slowdown in the property market reducing the number of transactions. Stakeholders also identified that increasing property prices and SDLT rates may mean it is more favourable for investors to use commercial rates. Stakeholders identified that there is a tipping point in property value, above which commercial rates are more favourable than MDR.

“From a commercial investors perspective, it [MDR] is less useful in London because property values are higher and therefore SDLT rates are higher. They’re higher than the commercial rate and because, you know, if you’re buying 6 or more, which in a build-to-rent context is invariably the case, then you just default back to the commercial rate at 5%. And so, it’s less applicable, whereas in parts of the country where your average SDLT rate is lower, like 1% or 3%, then actually that is better than the 5% rate that you get from treating the transaction as a commercial transaction and therefore it makes a difference.” Representative body

As a counterbalance to this, stakeholders interviewed identified that the Build to Rent sector was growing. They felt that this could be leading to increased use of MDR overall.

Business investors

Similar to institutional investors, property investors’ decision making was driven by cost. Businesses which were aware of MDR factored it into decision making. Small investors were using their own knowledge. They knew that successfully applying MDR would lower the SDLT bill so were factoring this in when making offers on dwellings. This group felt that MDR incentivized purchases of dwellings, such as those with an annex, which they felt there was less competition for. Therefore, these purchasers could identify properties they would not have purchased without MDR.

There were business investors in this sample who were not aware of MDR. In this case, decisions were made on other factors and the MDR relief was seen as an additional, unexpected benefit.

“Normally, our decision making is based, again, it’s usually on location and by the time we speak to the accountants, we’ve already made the mind up and instructed the lawyers, because we weren’t aware of it [MDR], it can’t be part of our decision-making process. Maybe now we are aware of it [MDR], it will be, but up until now, no. It has never been part of the decision.” Rental/holiday let business, 1 to 4 employees, South West

3.1.4 Extent to which the conditions of the relief are seen as being fit for purpose

Investors making decisions about investment purchases were factoring in all estimated associated costs, including property price, legal fees, SDLT and any required building work or decoration. Investors described making decisions about how much they would pay for a property based on projected revenue and costs. MDR was factored into this calculation. Without MDR, investors reported that they would make lower offers for dwellings they thought would be eligible for MDR, to offset higher rates of SDLT and bring the total investment cost to a level they felt was profitable. Investors were dispassionate and making purely financially informed decisions. If an offer was refused, they would look for another dwelling to purchase. Therefore, these investors saw MDR as enabling them to make higher offers for particular properties than they would without it.

The benefits of MDR were set against the context of structural challenges mid-size and smaller investors in the Private Rented Sector experienced. These were increasing property prices, the Higher Rate Additional Dwellings surcharge, changes to the tax system, increased operational costs and uncertainty about the implications of the Renters Reform Bill and Net Zero requirements.

“Yes [MDR is encouraging investment in the private rented sector,] but then they’ve introduced all these tax rates which really have hampered the PRS and that’s killed it…If you own a property in your personal name, it’s prohibitive, you can’t do anymore…. The stamp duty is the one-off cost. The interest rates and your ongoing cost far outweighs any benefit of MDR.” Rental business, 1 to 4 employees, North West

MDR was not seen as benefiting investors who were redeveloping land by knocking down existing properties. They had to pay SDLT on the existing properties, even though they were not related to and had no bearing on their future plans.

3.1.5 MDR Claim Process

Stakeholders discussing the experiences of large institutional investors were most likely to see the MDR calculations as being complex. This was possibly because they were dealing with more complex purchases and were also more aware of the complex emerging case law in this area. However, they felt that applying MDR was straightforward.

Amongst other business claimants, MDR was seen as being easy to claim. These claimants reported that MDR was applied during conveyancing, because they and their solicitors were aware of it and always intended to claim. These types of claimants saw a benefit to reducing their SDLT liability rather than claiming it back as it reduced the cashflow needed to make an investment, leaving this available for other purposes.

3.1.6 MDR compared to Six or More rule

As discussed in section 2.1, large institutional investors were typically making purchases of at least 6 dwellings in one transaction. This meant that they would use MDR if it offered advantages above the Six or More rule. Whether this was the case depended on the property value. Stakeholders identified a ‘tipping point’ for the property value, below which MDR was more advantageous and above which the commercial rates offered the best financial outcomes.

In contrast to large institutional investors, other business claimants in this sample were unlikely to be purchasing 6 or more dwellings in one transaction. This meant that the Six or More rule was less relevant to them. Therefore, MDR was more used by, and attractive to, mid-sized investors than large, institutional investors.

Amongst mid-sized business claimants making Six or More eligible purchases, the costs were inputted into valuation software to understand which would be most financially advantageous.

3.2 Outcomes

3.2.1 How MDR works to encourage investment

Large institutional investors

Amongst large institutional investors, MDR was one of many factors used to inform economic modelling about the potential return on a particular investment. Wider economic factors, project returns and costs are also factored in. MDR was reported to be influential in determining the economic viability of a project but not the sole determinant.

“I would say though that there are many other factors that have fuelled appetite in that sector [PRS]. And I think while the SDLT relief has been useful, for some it’s icing on the cake. For others, it doesn’t really make a great deal of difference. There are a few where it did push the deal economics the other way up the line…In most cases, people make a commercial decision to go ahead with it and then for some, where the economics may be more marginal, I think the relief has been helpful.” Stakeholder, Professional Services Firm

MDR was seen as being important in supporting the Build to Rent sector, which relies heavily on forward investment. Developers were described as preferring to deal with a single purchaser, such as a large investor, rather than multiple purchasers, as this is more straightforward to administer. Reducing SDLT liabilities when purchasing multiple properties makes the financial returns more attractive, supporting the Build to Rent sector.

“I think it [MDR] has been a really important part of the rules to make sure that the built-to-rent sector hasn’t been hampered by huge transactional taxes. I think most players in the market would say that, particularly those that transact outside of London where this relief is probably more useful, or more relevant because property prices are lower and so the SDLT rates that are appropriate for those dwellings are lower. I think it’s been really important as that sector’s started to take off.” Representative body

Other businesses

Amongst the other business investors interviewed, MDR was seen as working to encourage investment. For private investors there were specific benefits associated with an SDLT relief. SDLT is due in cash at the time of the transaction. Reducing the SDLT liability reduces the available cash needed to make an investment. As with large institutional investors, the difference made by MDR can tip a decision in favour of making an offer but is not the sole driver of an investment or purchase decision.

In addition, MDR was seen to encourage investors to purchase multiple dwellings in linked transactions. Investors in our sample believed that there was less competition for these properties.

“I definitely wouldn’t have done it [without MDR] …I think it would be relatively important.”  Rental business, sole trader, Yorkshire & Humber

“I quite like annexes [because of MDR] because it’s the opportunity that someone else again hadn’t seen. It’s where you can make a margin that someone else hasn’t.” Property development/rental business, 5 to 9 employees, East of England

3.2.2 Barriers to investment

Business claimants identified barriers to investing in property which MDR is not sufficient to overcome. These mainly related to increased costs. Increases in costs of SDLT itself were reported to have added to the cost of investment. Costs for building work were also reported to have increased substantially, above inflation, increasing the budget required for updating dwellings where needed. High interest rates have also impacted rental yields.

The design of MDR incentivizes investment amongst those making multiple purchases from the same seller. Small and mid-sized investors in this audience perceived that this incentive to invest was therefore targeted at larger investors.

“It depends on whether they want the investment in the market. If they want it from the big financial institutions then, fine, it probably is helping them.” Property investment business, sole trader, South East

3.3 Appropriateness

MDR was seen as correcting the impact of requiring transactions to be linked. Therefore, it was seen by this audience to be highly appropriate. Evidence from interviews with claimants and stakeholders showed that removing MDR would have little impact on either small investors purchasing mainly one property at a time, or particularly large investors purchasing large numbers of dwellings from the same developer (as they would use the commercial SDLT rates).

“Most investors, unless you’re a serious investor, do not buy [several] properties in one go.” Rental business, 1 to 4 employees, North West

Amongst businesses interviewed for this research, MDR played the greatest role in bringing forward investment from smaller and medium sized property developers able to purchase multiple dwellings in one linked purchase but not purchasing 6 or more properties at a time.  If MDR was removed, some of these investors reported that they would seek to purchase properties in separate transactions.

“I’d end up buying one at a time, so rather than buying say, 5… flats, you just try and buy them one at a time.” Rental business, 1 to 4 employees, North West

4 Private Individual Claimants

4.1 Implementation of MDR

4.1.1 Awareness of MDR

One private individual claimant in our sample was aware of MDR before making their purchase decision. The remaining claimants were not. For the one claimant who was aware, MDR had played an active role in their purchase decision. They wanted to live close to their daughter who has a disability to provide her with care and support. MDR allowed them to purchase multiple dwellings on one site, rather than dwellings which were close but not on the same land.

Other private individual claimants became aware of MDR during conveyancing or once conveyancing had been completed and they had moved into their property. When claimants found out about MDR and the information source influenced when it was applied to the transaction and experiences of claiming.

Private individuals who found out about MDR during conveyancing heard about it from their solicitor or estate agent. In these cases, the solicitor or estate agent mentioned it to them proactively.

Private individuals who found out about MDR after their purchase had completed found out about it through the media or direct mail from a solicitor or estate agent. Stakeholders were aware of private individuals hearing about MDR through direct mail and were concerned about this leading to people making inappropriate claims which would not be accepted.

Across all interviews, individuals did their own research into MDR on GOV.UK to confirm what they had been told.

4.1.2 Role of MDR in decision making

The one private individual participant who had been aware of MDR prior to making their purchase decision felt that it had played an active role in their decision making. The availability of MDR had determined their purchase decision. They reported that had MDR not been available they would have made a different purchase decision, which would not have met their needs as well as having multiple properties on one piece of land.

“It made it a no brainer to buy [that property] as we were not penalised on the stamp duty. If it had not been available, we may not have bought.” Claimant, aware of MDR when searching for the property

For claimants who had not been aware of MDR, it had played a passive role and was seen as an unexpected benefit, rather than a driver of behaviour.

4.1.3 Experiences of applying the relief

Experiences of applying and claiming MDR depended on when claimants became aware of it.

For private individual claimants who found out about MDR during conveyancing from their solicitor or estate agent, MDR was applied at this point in the transaction. In these cases, the relief was applied at the time SDLT was paid, deducting the MDR relief from the SDLT due, which streamlined the process. These claimants reported finding the process easy.

Those who found out about MDR after their purchase had completed submitted a claim to HMRC to apply MDR and reclaim a proportion of SDLT paid. This group had less confidence in their ability to claim MDR than those who had it applied during conveyancing. They were worried about the implications of making an erroneous claim. Those who sought professional support to re-claim MDR either used a solicitor experienced in and knowledgeable of MDR or the solicitor who had completed their original conveyancing, at no extra charge. Those who had found out about MDR through direct mail sometimes, though not always, used the firm which had approached them. There was also a claimant in this group with a professional history as an accountant who submitted the claim themselves. Overall, claimants in this group felt that they received their SDLT refund more quickly than expected.

Uncertain claims

The sample included claimants who made applications for MDR which were not clear-cut. In these cases, solicitors who were less confident or knowledgeable about MDR protected themselves in one of two ways. One method was to ask clients to use an SDLT expert to review and determine whether the claim was likely to be approved. Alternatively, solicitors asked claimants to sign a waiver, indemnifying the solicitor from liability if MDR was found not to apply in the future.

4.2 Outcomes

For private individual claimants, the purchase of a specific property was driven by desire and / or need, rather than the availability of the relief.

4.3 Appropriateness

Individuals who chose to buy the property they claimed MDR on to support their caring responsibilities felt that it was appropriate for them to be able to access the relief, to readjust the amount of SDLT to what it would have been if they were purchasing one property.

“To end up penalising somebody who’s perhaps having to buy a property because life has maybe dealt them 1 or 2 blows that they weren’t expecting, I don’t think that’s a fair reason to have to pay more in stamp duty.” Claimant, aware of MDR when searching for the property

When claimants who had not known about MDR were asked what impact knowing about it when looking for a property would have made, claimants who felt it would have made no difference were those who needed, or wanted, to buy the specific property. Claimants who felt that knowing about MDR would have made a difference reported that this would have meant they could allocate more of their overall budget to the property, meaning their property search may have been easier, as they would have been able to afford different properties. These claimants bought the property they claimed MDR on to support intergenerational living or for caring purposes.

“If I had known about it, it would have made the decision to buy easier, as the total cost would have been cheaper.” Claimant, aware of MDR after moving into the property

“I would look at converting a property from flats back to one property again, for personal use, when we’ve possibly decided to move in about 10 years. MDR means more available budget to do the renovation.” Claimant, aware of MDR after decision to buy property had been made

Stakeholders identified private individual claims as those with the highest risk of misuse of MDR. They felt that this group (and small landlords who have more in common with private individuals than larger investors) were more likely to use a high street conveyancer and less likely to have specialist legal advice. Stakeholders felt that conveyancers were less likely to be able to advise on the complexity of MDR. Interviews with private individual claimants showed that there was inconsistent awareness of MDR amongst solicitors. Stakeholders gave examples of seeing this result in negligence cases, with claimants seeking rectification for an advisor not telling them about MDR. In the interviews with private individuals, there were examples of solicitors asking clients to sign an indemnity against this.

5 Conclusions

MDR was used differently by businesses and individuals and the scheme had different impacts amongst each group.

5.1 Businesses

Businesses in our sample were property investors. Investors of all sizes were using MDR to reduce the SDLT due on properties to be rented out or renovated and sold.

Businesses were making decisions about investments based on forecast financial returns. MDR was seen as a way of reducing the SDLT due thereby reducing the overall transaction cost. Reducing the cost of an investment increased profitability and therefore viability of the investment. MDR formed parts of these calculations but the relief itself was unlikely to be the sole determining factor in whether or not an investment was made.

Business participants reported finding the property market increasingly challenging to invest in at the time fieldwork was conducted. This meant importance was placed on ways to save money and make investments more attractive, including MDR. However, MDR did not fully mitigate the emerging challenges or increased costs which investors were experiencing. MDR was seen as being aimed at larger investors in the PRS, buying multiple dwellings in one transaction, rather than smaller investors.

5.2 Individuals

Private individual claimants bought the properties they claimed MDR on out of necessity or preference. Those purchasing a property out of necessity required a property configured to meet their needs.

Private individuals had little awareness or understanding of MDR. Those who needed to buy the property they claimed MDR on saw it as a benefit for people in challenging circumstances. Those who purchased out of preference saw it as an unexpected benefit.

The wider property market context had little impact on use of MDR by these claimants. They were influenced by awareness and the opportunity to save money. This group were surprised by the low awareness of the relief, and how to apply it, amongst property professionals which led to delays in applying the relief.