Multiple Dwellings Relief (MDR) is an important relief for Stamp Duty Land Tax (SDLT), where a purchaser acquires more than one dwelling as part of a transaction, or where there is a single dwelling purchase, but it is linked to at least one other transaction of a single dwelling.
MDR can help reduce the SDLT payable, and so is naturally a popular relief for purchasers. However, the application of MDR is very fact specific, and each case should be considered on its own merits. This is particularly true in the case of a home purchased with an annex.
The question that arises, is whether both the main house and the annex are both suitable for use as a single dwelling?
The recent case of Fiander v Revenue and Customs [2020] UKFTT 190 (TC) looks at this question and helps those considering whether the property they’re purchasing really is two dwellings, and as such if MDR applies.
Briefly, the main house and the annex were connected by a short, enclosed corridor, but with no lockable door (there was a door jamb). The annex had not really been marketed as such, did not have separate metering (though little weight was put on this); but did have a sitting room, a kitchen/utility, a bedroom and a shower room. It even had its own access through a set of French doors.
The appellants submitted that the question was whether the dwelling was capable of use as separate dwellings and pointed to confirmation that the absence of a lockable door was not fatal, but perhaps a good indicator. In any case, a door could be added with minor effort and expense, in the same way, that a property that lacks a kitchen is not necessarily unsuitable for use as a dwelling, as a kitchen could be added with relative ease.
The Tribunal found in favour of HMRC, noting that to an objective observer, the properties could only be used as two separate dwellings if there was a close relationship with trust, between the occupants of the main house and the annex, due to the ease of which the privacy and security of each property could be infringed upon. In absence of that relationship, “the main house and the annex would not be individual suitable for use as dwellings, due to the insufficiency of privacy and security for occupants of both parts.”
Further, the Tribunal held there was “nothing in the physical state of the property at completion would have indicated to an objective observer that there had ever been a physical barrier between the annex and the main house sufficient to enable occupation of the annex by a member of the general public and establish it as a stand-alone dwelling”. The idea that a door could be added with relative ease did not improve the situation, since doing so would not be restoring or repairing the property, to enable the resumption of that use. It would be “the addition of a new physical feature to enable it to serve as a stand-alone (rather than a joined) dwelling”
If you are looking at buying a property with an annex, this case is a good example of why sensible and considered advice should be taken if you want to claim MDR. Roythornes’ Tax team are on hand to help.