Multiple Dwellings Relief: The current state of play

Introduction – Multiple Dwellings Relief

Multiple Dwellings Relief (“MDR”) is intended to provide some relief from Stamp duty Land Tax (“SDLT”) where a purchaser acquires two or more dwellings in a single chargeable transaction. It can result in significant tax savings as it averages out the total consideration over the number of dwellings purchased.

MDR applies to a chargeable land transaction whose main subject-matter consists of an interest in at least two dwellings. It can also apply to ‘linked’ transactions involving the acquisition of an interest in more than one dwelling.

What is a dwelling?

For the purposes of MDR, a building will count 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.

HMRC has recently provided greater clarification as to what constitutes a dwelling:

“It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents can live independently of the residents of the rest of the building including independent access and domestic facilities.”

Although the intention of the relief was to encourage investment in residential property, it is not surprising that taxpayers buying expensive houses have tried to claim that parts of their properties, consisting of ‘annexes’ separable from the main house, are capable of constituting separate dwellings.

Recent cases

General

Perhaps unsurprisingly, this has led to a flurry of recent cases, almost all of them unsuccessful for the taxpayer, that have come before the Tribunals.

There is a common theme in these cases which I discuss below.

Fiander case

In Fiander [2020] TC 07676, a main house and an annexe acquired as parts of a residential property and each with its own living accommodation and connected by a short, open corridor were held not to constitute a single dwelling, such that the transaction did not qualify for MDR.

Merchant case

A similar decision was reached in Merchant [2020] TC 07783, where access to the basement annexe was via a common hallway in the main house.

Partridge case

In Partridge [2021] TC 07991, the approach in Fiander was followed, to deny the relief where access to the bathroom and a utility room in the annexe could be had from the main house.

Doe case

Similarly, in Doe [2021] TC 08003, MDR was refused for a first-floor annexe. Access to the annexe was via the communal entrance hall and a half-landing on the first floor. Several doors of the main house were accessible from the entrance hall and the main house also included two first-floor bedrooms. People leaving those bedrooms could only use the ground-floor facilities, including notably the bathroom of the main house, via that landing. It could not be said the annexe was suitable for use as a separate dwelling on the grounds of insufficiency of privacy and security for the occupants of both the main house and the annexe.

Common themes?

The common theme that seemed to be emerging from these cases was that the test for a single dwelling is a strict one, involving proper facilities for sleeping, privacy, personal hygiene and food preparation. Also, these facilities must be present, or in the course of being provided, at the effective date of the transaction.

These factors were set out when the decision in Fiander came under appeal to the Upper Tribunal, which released its decision in July this year.

The Upper Tribunal set out a series of observations on the meaning of ‘suitable for use as a single dwelling’ which are likely to become the yardstick for future decisions in this area.

They are as follows:

• The word ‘suitable’ means that the property must be fit for use as a single dwelling. It is not enough if it is capable of being made fit for use by alterations.

• The legislation provides that a dwelling is also a single dwelling if ‘it is in the process of being constructed or adapted’ for use as a single dwelling. The definition extends only to a situation where the process of such construction or adaptation has already begun, strongly implying that a property is not suitable for use as such if it merely has the capacity or potential with adaptations to achieve that status. Second, the status of a property must be ascertained at the effective date of the transaction. Whether the property is suitable for use as a single dwelling falls to be determined by the physical attributes of the property as they exist at the effective date, not as they might or could be. A caveat to this analysis is that a property may be in a state of disrepair and nevertheless be suitable for use as a dwelling or a single dwelling if it requires some repair or renovation; that is a question of degree for assessment by the FTT.

• The word ‘dwelling’ describes a place suitable for residential accommodation which can provide the occupant with facilities for basic domestic living needs. Those basic needs include the need to sleep and to attend to personal and hygiene needs.

• The word ‘single’ emphasises that the dwelling must comprise a separate self-contained living unit.

• The test is objective. The motives or intentions of particular buyers or occupants of the property are not relevant.

• Suitability for use as a single dwelling is to be assessed by reference to suitability for occupants generally. It is not sufficient if the property would satisfy the test only for a particular type of occupant such as a relative or squatter.

• The test is not ‘one size fits all’. For example, a development of flats in a city centre may raise different issues to an annexe of a country property. What matters is that the occupant’s basic living needs must be capable of being satisfied with a degree of privacy, self-sufficiency and security consistent with the concept of a single dwelling. How that is achieved may vary.

• The question of whether or not a property satisfies the above criteria is a multi-factorial assessment, which should take into account all the facts and circumstances. Relevant facts and circumstances will obviously include the physical attributes of and access to the property, but there is no exhaustive list which can reliably be laid out of relevant factors. Ultimately, the assessment must be made by the FTT as the fact-finding tribunal, applying the above principles.

Conclusion

From the cases above, it is safe to say that the courts will apply the tests strictly.

Another important point to remember is that the building or part of a building concerned must fall within the definition at the effective date (which is usually the completion date). What happens afterwards is of no consequence.

If you have any queries about this article, Multiple Dwellings Relief or property matters in general then please get in touch.