Homebuyers are facing “a massive change” 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 bills could double from this weekend as those buying houses with adjoining buildings will have to pay stamp duty twice and will not be able to benefit from subsequent tax breaks.
Stamp duty on residential properties can be as high as 12 per cent for the most expensive properties.
Jeremy Hunt scrapped the relief in the budget, claiming it was regularly abused.
Buyers can work out how much buy-to-let relief they would get by dividing the total amount paid for the property by the number of flats, then calculating the tax on this figure and finally multiplying it by the number of flats.
The minimum tax rate under the relief is one percent of the amount paid for housing.
Removing the relief will make a “massive tax change” which will increase the cost of houses with annexes
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However, critics warned it created a stamp duty loophole as buyers could buy a house with a ‘granny annex’ or other self-contained rooms not used separately and list it as two properties to lower their bill.
Kundan Bhaduri, property developer at The Kushman Group said: “This was a loophole that has unfairly favored developers and large portfolio owners at the expense of retail buyers and should have been removed some time ago.”
Property investors have warned that the removal of the relief will have a massive financial impact as it will increase the cost of attached houses.
The removal of MDR may limit the market for buying and investing in residential blocks.
Industry bodies including the British Property Federation and investment firm CBRE have previously warned its scrapping could result in between 13,000 and 25,000 homes not being built.
Abolishing the MDR will raise £385m a year for the Exchequer by 2028-29, according to official estimates.
According to tax advisers Blick Rothenberg, a property with an annexe costing £2m will pay an extra £68,750 in stamp duty after the MDR is removed.
Michaela Seager, of tax adviser RSM, said the tax change would mean a “massive difference” in cost for some buyers.
He said: “We had a case this week where they are trying to make an off-line purchase and around £30,000 of tax is at stake.
“We are seeing a lot of people rushing transactions ahead of Friday. May is usually not as busy for transactions. But I wouldn’t be surprised if it was because of this deadline.
“There could be a slowdown in annexe home sales and that could mean fewer homes coming on the market if people keep their parents in their own properties rather than buying granny flats to keep them around .”
Figures from the RSM show that a homeowner moving into a £550,000 property with a detached annexe would now pay £15,000 in stamp duty, but the bill could have been as much as £5,500 using the MDR.
George Burnand, a partner at JM Chase, has also assisted a client in the purchase of a main house and secondary accommodation.
He said: “The stamp duty saving was approximately £80,000. “The removal of this relief will have an impact on the higher housing market and the prices that buyers are prepared to pay.”
Stevie Heafford, tax partner at HW Fisher, says there has been an influx of people trying to complete or substantially complete contracts ahead of schedule.
Heafford points out that property investors who buy six or more properties in a series of linked transactions will still be able to claim the non-residential rates.
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She added: “Whether or not this will mean investors looking to buy more units than they might have otherwise 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 this week for clients – having deliberately timed purchases to take advantage of the MDR before it was cancelled.
Watt said: “One is four flats and the other is two, so that’s a significant stamp duty saving of tens of thousands of pounds.
“A lot of our customers have taken advantage of 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 the reason someone would buy more than one property.”