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Multiple Dwellings Relief annexe
We are encountering an increasingly common scenario of clients buying more than one dwelling in a single transaction – typically, a granny annexe or granny flat, or an attached holiday let. If specific criteria are satisfied in these situations, reducing your Stamp Duty (SDLT) liability through Multiple Dwellings Relief may be possible.
Stamp Duty Multiple Dwellings Relief
However, the calculation of Stamp Duty rates when buying multiple dwellings – particularly the interpretation of what constitutes a single dwelling – is complex, and you should always take specialist tax advice. Get it wrong and apply incorrectly for Stamp Duty Multiple Dwellings Relief and you may open the door to an HMRC investigation.
In simple terms, though, if SDLT Multiple Dwellings Relief does apply, the tax payable for each is calculated on the average price. Thus, for example, if there are two dwellings valued at £1 million and £100,000 respectively, SDLT is charged based on two dwellings valued at £550,000 each, resulting in an overall net tax saving.
In deciding what constitutes a ‘single dwelling’, the Finance Act 2003 Schedule 6B provides the following definition:
“A building or part of a building counts as a dwelling if—
(a) it is used or suitable for use as a single dwelling, or
(b) it is in the process of being constructed or adapted for such use.”
Admittedly, that’s not hugely helpful! So instead, we must turn to case law to gain a better flavour for what are considered the essential characteristics.
SDLT Multiple Dwellings Relief examples
In the recent case of Edward and Clare Partridge v HMRC, Mr and Mrs Partridge purchased a six-bedroom detached property with an annexe for £915,000. The intention was to live there with their three children, with Mrs Partridge’s parents moving in once alterations had been made. They filed their SDLT return, subsequently amending it to include a claim for Stamp Duty Multiple Dwellings Relief in respect of the annexe.
The annexe had a separate entrance, kitchen and garden, and internal doors allowed it to be shut off from the main house. However, there was no designated bedroom, and a bathroom was accessed through the hallway of the main house. Following an enquiry, HMRC denied their claim for relief.
Mr and Mrs Partridge appealed, maintaining that the annexe was a separate dwelling and Multiple Dwellings Relief should be available. But the Tribunal found that the burden of proving that the annexe was used as, or suitable for, an independent dwelling lay with Mr and Mrs Partridge. They stated that a dwelling was:
“a place where a person or a number of persons live. A building or a part of a building can be suitable for use as a dwelling only if a building or part of a building accommodates all of the basic domestic living needs of that person or persons.
“Those basic domestic living needs are to sleep, to eat, and to attend to the personal and hygiene needs of the person or persons living in the dwelling.
“Those basic domestic living needs also are to be accommodated with a reasonable degree of privacy and security.”
The suitability of the annexe as a dwelling should “to be adjudged from the perspective of a reasonable person observing the physical attributes of the property at the time of the transaction”.
Applying these principles, the Tribunal found that the annexe was not ordinarily suitable for use as a dwelling, pointing specifically to the fact that the living and bathing facilities were not separate from the main house. Accordingly, to the eyes of an objective observer, at the completion of the purchase, the main house and the annexe would be viewed as a single dwelling. Therefore, the appeal failed.
In Michael and Anthea Mullane v HMRC, Mr and Mrs Mullane argued that a converted coach house that was connected to the main property via a glass conservatory was a second dwelling for Stamp Duty Multiple Dwellings Relief purposes. Although the coach house had a bathroom, a living area, a sink, worktop, fridge and cupboards, the only cooking facility was a microwave. This proved crucial in the Tribunal finding against Mr and Mrs Mullane.
If the coach house was let, the kitchen facilities would have prevented it from satisfying fire or building regulations. Accordingly, it was not a dwelling, the judge noting that the statutory purpose of Multiple Dwellings Relief was to increase the supply of rented accommodation. If the property could not be rented out without modification, that was a strong indication that it was not a dwelling.
The judge also noted that prior use could be an important factor, as could whether a separate council tax bill was required.
In Mobey and another v HMRC, the appellants purchased a large property with a separate annexe. The annexe provided significant independence from the main house, including having its own lockable entrance, fuse box, electricity meter, water supply and sewage pipes. But crucially, it had no cooking facilities and was not assessed separately for council tax. Consequently, the Tribunal held it was not a separate dwelling.