Propertymark and other stakeholders warned that losing MDR could increase the cost to businesses of entering or expanding in the private rented sector (PRS), and this would be passed on to tenants as increased rent. Increased tax costs would also negatively impact overall housing supply. Therefore, we are pleased to see the Welsh Government follow our advice to capitalise on the divergence of the tax regimes in England and Wales and draw investment into the housing sector.
Enhancing the focus of MDR
The new regulations will amend the rules so taxpayers cannot claim MDR for multiple-dwelling transactions subject to the Land Transaction Tax (LTT) main residential rates if the Subsidiary Dwelling Exception (SDE) applies. The SDE applies to properties with a main dwelling and one or more additional dwellings, such as a home with an annexe, purchased in one transaction.
It is anticipated that the number of transactions affected by the proposed changes will be very low, as the average annual number of MDR claims is only around 400, from a total of around 55,000 LTT transactions. However, the Welsh Government believes it will increase LTT revenues by between £1 million and £2 million per year.
Wider issue of tax for the PRS
Our position paper on the impact of tax changes on the PRS calls on the UK Government and the devolved nations to review all property taxes on landlords.
Perhaps the biggest impact on the supply of homes in the PRS is the UK Government’s decision to phase out Mortgage Interest Relief and other tax deductibles as part of Section 24 of the Finance Act 2015.
While most tax levers continue to be within the competence of the UK Government, we strongly recommend that the Welsh Government reduces the higher rates of LTT on residential property to stimulate increased investment and calls for a reversal of the phasing out of Mortgage Interest Relief.
