Stamp Duty reform puts ‘bulk purchases market at risk’

The pending abolition of Multiple Dwellings Relief (MDR) could end up stifling the construction industry and put up too 25,000 homes at risk of being built and threatening up to 60,000 jobs that go with it, Stamp Duty experts Cornerstone Tax has warned.

HM Treasury is expecting the move to boost its coffers by £385 million each year towards the end of the decade as UK buyers will now have to pay more tax with investors having to purchase six or more units to reap the benefits of Stamp Duty Land Tax (SDLT) relief.

BLOCK TO STOP

But David Hannah, Group Chairman of Cornerstone Tax, reckons that the Government has generated another block to stop the property market from making a recovery.

As it stands, a property buyer purchasing three apartments from a developer at £350,000 each would have to pay £46,500 in tax.

However, once MDR is abolished in June that same investor will have to pay £77,750. Hannah claims investors wanting to buy six units and pay the 5% rate of SDLT will in effect have to pay £47,250 each which is less than the £77,750 they were being asked for and only slightly more than the £46,500 that they would have paid for under MDR. Had the price been £400,000 each, the six units would have been cheaper than MDR.

As a result, purchasers of multiple units will either have to increase their minimum purchase quantity to six or, conceivably team up with other multiple purchasers into buying groups.

FRESH INCENTIVES

Hannah says: “Multiple Dwellings Relief was first implemented as means to incentivise bulk purchases and provided developers with a suitable avenue for delivering low-cost homes. At a time when demand for affordable housing has skyrocketed, the government should look to create fresh incentives for developers, instead of abolishing old ones.

“The decision by the Chancellor to increase the tax that developers are forced to pay from 1-2% to 5% will have a seismic shift across Britain’s construction sector, leading to project abandonment and further increases to asking prices as supply continues to lag behind an overwhelming demand for affordable housing. Don’t be fooled, this is a stealth tax increase with a paper-thin justification laced over the top of it.”

And he adds: “The Chancellor could have used this opportunity to reform the private rental sector, measures including the abolition of the second home surcharge from rental sector investors and reinstating full relief on mortgage interest payments would have both reduced the costs of purchase, whilst also allowing landlords to freeze, or potentially cut, rents.”