Real estate and construction – key changes from the Spring Budget 2024

In our Spring Budget 2024 update, we give a full summary of measures and changes announced by the Chancellor, Jeremy Hunt.

The significant changes for the real estate and construction sector are as follows:

• The higher rate of Capital Gains Tax (CGT) for residential property disposals will be cut from 28% to 24%,
• The abolition of the Furnished Holiday Lettings (FHL) tax regime
• The abolition of Multiple Dwellings Relief (MDR)

It’s worth dwelling on the abolition of MDR, which we see having a significant impact on the Student Accommodation sector.

Farewell to stamp duty savings: the abolition of Multiple Dwellings Relief

MDR provides for a potentially lower rate of stamp duty land tax (SDLT) on the acquisition of multiple residential properties in the same contract. MDR has been the subject of a number of tax cases and perceived abuse which may have led the government to withdraw the relief.

MDR has historically been important to the Purpose Built Student Accommodation (PBSA) sector. Given the way many modern PBSA assets are built and constructed it has often been possible to achieve SDLT rates (using MDR) of as low as 1%. This will now increase to 5% on the basis that the next best thing to MDR is applying the non-residential rates of SDLT which are applicable to acquisitions of six or more dwellings.

PBSA asset pricing has historically taken direct account of the SDLT transaction cost and the repeal of MDR will either impact pricing or, more likely, reduce profits and gains for those realising these types of asset.

There is also an impact of this rule change in the wider build to rent (BTR) sector, although, because of the way the rules work for non-student assets, the impact on pricing and returns is far less significant.

The repeal comes into effect on 1 June 2024. Any deals with contracts that exchanged on or before 6 March 2024 will continue to benefit from MDR regardless of when they complete.  Any transactions which are contemplated or in the early stages at the moment may need to be progressed at pace prior to June to benefit from MDR.

“I’m not sure if the government have identified or considered how this change will affect the student accommodation market. But given there is still massive undersupply in the student accommodation market, it’s disappointing that a tax measure that was actually helping get assets to market is now being removed, with nothing obvious to replace it.”

Guy Richardson – Head of Real Estate and Construction

If the abolition of Multiple Dwellings Relief will affect your investment plans and you would like to discuss this or any other real estate tax matter, please get in touch with our experts.