Research and analysis

Stamp Duty Land Tax Relief for Multiple Dwellings Process Evaluation Quantitative findings Executive Summary

Published 6 March 2024

1. 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.

2. Executive summary

2.1 Introduction

Multiple Dwellings Relief (MDR) is a tax relief that can be claimed against Stamp Duty Land Tax (SDLT) when a purchaser buys more than one residential dwelling in a single, or linked, transaction. When claimed, MDR causes the SDLT owed to broadly align with what would have been payable had the properties been purchased individually from different vendors in separate transactions.

In February 2023 HMRC commissioned IFF Research and Frontier Economics to conduct an evaluation of MDR claimants to develop a greater understanding of the use and effects of the relief. The specific objectives of this evaluation were to:

• increase understanding of who is using MDR and for what purposes

• assess to what extent MDR is meeting its objectives.

• assess claimants’ understanding of MDR and the interactions with other aspects of SDLT

• establish if conditions of MDR are proportionate

• assess the property market impact of MDR

To meet the objectives outlined above, IFF Research adopted a multi-mode survey methodology which yielded 2,162 surveys with MDR claimants that were known to have claimed MDR on transactions made between April 2019 and September 2022.

Frontier Economics carried out a scoping exercise to assess whether a robust econometric evaluation of the impact of MDR on key market outcomes could be conducted. Following the scoping it was agreed that no robust econometric analysis could take place within this contract.

Frontier instead conducted a rapid, targeted (non-exhaustive) literature review of the relationship between transaction taxes and housing market outcomes (including house prices, transaction volumes, rental prices, and the number of rental properties).

2.2 Key findings

Who is using MDR and for what purpose

Around half (51%) of all claimants used the dwellings MDR was claimed against for personal purposes only (including to personally live in, for family to live in and to be used as a second home). These claimants were defined as private individuals.

A third (35%) of claimants used dwellings for business purposes only (including renting out, property development, storage and as office space). These claimants were defined as businesses. A further 11% of claimants used the dwellings for mixed personal and business use, while 3% were undefinable.

The nature of transactions that MDR was claimed against and the end-use of dwellings varied considerably between private individuals and businesses.

With regards to private individuals:

• the majority (84%) claimed MDR against the purchase of 2 dwellings, resulting in a mean average of 2.2 dwellings and a median average of 2 dwellings

• the mean average total value of dwellings MDR was claimed on was £1,780,000 and the median average was £940,000

• the most common type of dwellings purchased were houses (70%), followed by residential properties with annexes and a mix of houses and flats (13% respectively)

• private individuals were most likely to report claiming MDR on dwellings located in the South East (36%) or South West (24%) of England

• more than two thirds reported personally living in the dwellings (69%) and close to half reported that the dwellings were lived in by family members (49%). Combined, 95% of private individuals reported either of these uses

With regards to businesses:

• the mean average number of dwellings covered by MDR claims was 5.1 and the median average number of dwellings was 4

• the mean average total value of dwellings MDR was claimed on was £1,560,000 with a median average of £750,000

• the most common type of dwellings purchased were flats (58%), with 33% having purchased houses and 7% having purchased a mix of houses and flats

• businesses were most likely to report claiming MDR on dwellings located in London (22%), closely followed by the South East of England (19%)

• by far the most common use of dwellings amongst businesses was renting them out (86%), of which most did so through the private rental sector (80%)

Claimants’ understanding of MDR and the interactions with other aspects of SDLT

Most private individuals and businesses became aware of MDR during or after the decision to purchase the dwellings that MDR was claimed against (81% of private individuals and 56% of businesses).

For both audiences, the most common source of awareness was an external third party (75% respectively), typically a solicitor or conveyancer (48% of private individuals and 44% of businesses). In addition to being the most common source of awareness, external third parties oversaw the majority of MDR claims (86% of private individuals and 88% of businesses).

Amongst both audiences around nine in ten claimants were aware of at least one of the six shortlisted types of property shown in the survey and the transactions that MDR can be claimed against (91% of private individuals and 89% of businesses).

However, there were some notable differences in awareness of eligible property and transactions. For example, private individuals were more likely to be aware that MDR can be claimed against purchases of self-contained dwellings on the same land as another dwelling (78% compared to 41% of businesses), while businesses were more likely to be aware MDR can be claimed on properties bought in bulk (66% compared to 28% of private individuals).

These differences are likely to be a reflection of the different nature of the investments that each audience typically claimed MDR on, with private individuals more likely to have purchased houses and businesses more likely to have purchased flats.

It is also likely to be a reflection of the involvement of external third parties. Most claimants became aware of MDR from external third parties during or after the decision to purchase dwellings. It is therefore plausible that private individuals and businesses were advised by external third parties that the relief could be claimed on the type of property or transaction relevant to them.

Businesses were more likely than private individuals to be aware of the intricacies of MDR and the alternatives available. Specifically, they were more likely to be familiar with the ‘six or more’ rule (35% compared to 8%) and the 1% minimum rate of tax under the relief (43% compared to 24%).

There was a mixed picture in terms of the extent to which private individuals and businesses found the MDR rules to be easy to understand and apply. Amongst private individuals, nearly two-fifths (38%) reported that it was easy, and a quarter (28%) reported that it was difficult. Amongst businesses, around a third (35%) reported that it was easy and 30% reported that it was difficult.

Extent to which MDR is meeting its objectives

The overarching objectives of MDR are to strengthen demand and reduce barriers to investment in residential property with the intention of promoting increased supply in the private rented sector. The evaluation uncovered little to no evidence of the relief having this effect on private individuals. Amongst businesses, the evidence was more varied.

Most private individuals said that the availability of MDR had no influence over their decision to buy multiple dwellings (61%) and reported that they would have spent the same amount on dwellings if MDR had been unavailable (60%). Moreover, most private individuals that purchased dwellings that formed part of a linked transaction said that the ability to claim MDR on such transactions had no influence on the size (62%) and timing (73%) of purchases

For businesses the results were more mixed. Three-fifths (60%) said the availability of the relief had at least some influence on their decision to purchase dwellings, with 30% saying it had an important or very important influence. Two-fifths (38%) said it had no influence on their decision making.

With regards to the amount spent on dwellings, only two-fifths (39%) of businesses reported that they would have spent the same amount had the relief been unavailable, with 33% reporting that they would have spent less.

Amongst businesses that claimed MDR on dwellings that formed part of a linked transaction, half (49%) said that it had no influence, 44% said it had a bearing on the size of purchases and 37% said it had an influence on the timing of investments. Combined, 30% said it had an influence on both size and timing.

These findings should not be considered conclusive evidence of MDR failing to reach its objectives of reducing barriers for purchasing residential property with a view to supporting supply in the private rented sector. The self-reported influence of MDR on strengthening demand has limitations due to potential biases in claimant’s perceptions and the complexity of accurately attributing changes in behaviour to the presence of a tax relief.

Whether the conditions of MDR are proportionate and appropriate

Findings from the evaluation indicated that the proportionality of MDR differs between private individuals and businesses, with fewer private individuals reporting a change in their behaviour following a reduction in SDLT.

Under a hypothetical scenario where SDLT bills were 50% lower than when MDR was claimed, half (51%) of private individuals reported that they would have spent the same amount on dwellings. Just under a third (31%) said they would have spent more. With regards to this latter group, the mean average increase in spend was 12% and the median average increase in spend was 8%.

Under the same scenario, two-fifths of businesses (40%) reported that they would have spent the same amount and a similar proportion (37%) said they would have spent more. With regards to this latter group, the mean average increase in spend was 20% and the median average increase in spend was 10%.

It is important to note that it is unknown how claimants would have achieved such reported changes in purchasing behaviour had the SDLT bill on the dwellings MDR was claimed against been higher or lower. For example, amongst claimants that reported they would have spent less, some may have envisaged purchasing fewer dwellings while others may have envisaged purchasing the same number of dwellings at a lower price.

The effect MDR has on the property market

The survey findings indicated that the majority of claimants put the dwellings MDR was claimed against to residential use. Amongst private individuals, 95% either personally lived in dwellings (69%) or used them to house family members (49%).

Meanwhile, more than four-fifths (86%) of businesses were renting out the dwellings, typically through the private rental sector.

The wider literature review identified a very limited number of high-quality empirical studies which attempt to measure the impact of transactions taxes on property and rental market outcomes, and no studies that examined the impact of MDR specifically.