Homebuyers face a “huge difference” in property prices from this weekend as they will no longer benefit from the MDR.
The MDR is a Bulk Purchase Relief from Stamp Duty Land Tax (SDLT) that applies to the purchase of two or more dwellings.
Stamp duty could double from this weekend as those buying houses with outbuildings will have to pay stamp duty twice and will not be able to take advantage of subsequent tax relief.
Stamp duty for residential properties can be as high as 12 percent for the most expensive properties.
Jeremy Hunt has scrapped the budget relief, saying it was regularly abused.
Buyers could calculate how much relief they would get from their purchases by dividing the total amount paid for the property by the number of dwellings, then calculate the tax due from that number and finally multiply it by the number of dwellings.
The minimum tax rate under the relief is one percent of the amount paid for the dwelling.
Abolishing the relief will see a “massive tax change” that will increase the cost of houses with extensions
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But critics warned it created a loophole in stamp duty, as buyers could buy a house with a “granny extension” or other separate rooms not used separately and present them as two properties to reduce their bill.
Kundan Bhaduri, property developer at The Kushman Group, said: “This was a loophole that unfairly favored developers and large portfolio landlords at the expense of retail buyers and should have been removed some time ago.”
Property investors have warned that scrapping the relief will have a huge financial impact as it will increase the cost of houses with annexes.
The removal of MDR could limit the market for buying and investing in prefabricated houses.
Industry bodies including the British Real Estate Federation and investment firm CBRE have previously warned that its removal could result in 13,000 to 25,000 homes not being built.
Abolishing the MDR will bring £385m a year to the Exchequer by 2028-29, according to official estimates.
The £2m extension property will pay an extra £68,750 in stamp duty once the MDR is scrapped, according to tax advisers Blick Rothenberg.
Michaela Seager, of tax adviser RSM, said the tax change would make a “huge difference” in costs for some buyers.
He said: “We’ve had one case this week where they’re trying to get a purchase over the line and there’s about £30,000 of tax involved.
“We see many people rushing to transact before Friday. May is not usually so busy for transactions. But I wouldn’t be surprised if it was because of this term.
“There could be a slowdown in the sale of annexe houses, which could mean fewer homes coming on the market if people are keeping their parents in their properties rather than buying granny annexe houses to keep them around.”
RSM figures show that a homeowner moving into a £550,000 property with a detached extension would now pay stamp duty of £15,000, but the bill could have been as much as £5,500 using the MDR.
George Burnand, partner at JM Chase, also helped expedite the client’s purchase of the main house and outbuildings.
He said: “The stamp saving was around £80,000. “The removal of this relief will have an impact on the high-end residential market and the prices that buyers are willing to pay.”
Stevie Heafford, tax partner at HW Fisher, says there has been an influx of people trying to complete or substantially fulfill contracts ahead of schedule.
Heafford points out that property investors who buy six or more properties in one series of linked transactions will still be able to claim non-residential rates.
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She added: “Whether or not this will mean investors will want to buy more units than they otherwise would, or whether it will have a detrimental impact on property investment remains to be seen.”
James Watts, of buying agency Prime Purchase, said he had completed two properties for clients this week – deliberately timing the purchases to benefit from the MDR before it was scrapped.
Watt said: “One is four dwellings and the other is two, so that’s a significant saving in stamp duty in the tens of thousands of pounds.
“A lot of our clients have benefited from it, but it’s been in consultation for a while so it’s not a huge surprise.
“It’s always been seen as a nice little bonus rather than a reason for someone to buy more than one property.”