Annexes, Self Contained Dwellings & MDR

Multiple Dwellings Relief (“MDR”) offers relief for residential property transactions where the transaction consists of two or more self-contained dwellings – typical cases will involve a residential property which has a connected or unconnected annex.

What is a Self-Contained Dwelling?

For a self-contained annex to qualify as a dwelling, it will need to be:

1. Used as a dwelling;
2. Suitable for use as a dwelling; or
3. In the process of being constructed or adapted for such use

If the self-contained annex is actually being occupied as a self-contained dwelling then it will almost certainly qualify for relief.

If the self-contained annex is not being occupied, then you will need to demonstrate that it is suitable for use as a dwelling.

What are the key factors?

In order for a self-contained annex to qualify as a dwelling, it will need to have the facilities to provide the basic living necessities such as facilities for personal hygiene, consumption of food and drink, storage of personal belongings and a place to sleep.

As such, the prima facie indicators that a self-contained annex will qualify as a dwelling as such include:

• A bedroom – a place for the residents to rest, sleep and store personal belongings

• A kitchen – a place for the residents to store, prepare and consume food and drink

• A bathroom – a place for the residents to maintain their personal hygiene

• Privacy and Security – the self-contained annex would ideally be accessible separately from the main property and / or with any connecting doors being lockable from the inside

Whilst, these might be the minimum criteria required, it is not always conclusive. For instance, a number of self-contained dwellings may share a kitchen.

What else do I need to think about?

Recent case law has illustrated that one must take a realistic approach when determining whether a self-contained annex may qualify for relief. With this in mind, other factors which may prove useful / detrimental in a claim for MDR may include:

• A separate utilities supply would evidence that the self-contained annex could be occupied without reliance on the utilities supply of the main house

• A separate postal address would further evidence the suitability of the self-contained annex to be used as a dwelling with personal and private mail being deliverable to the annex directly

• A separate council tax license would evidence a clear degree of separation between the main house and the self-contained annex

• If it is possible for the annex could be sold in isolation then this may evidence that it is suitable for use as a self-contained living area

• Historic occupation of the self-contained annex may evidence its suitability for use as a self-contained annex

Do I Have a Self-Contained Dwelling?

Due to the way the legislation is drafted, there is no checklist of criteria or conditions which allows scope for a judgement call. Ultimately, it will be a case of weighing up all of the factors and taking a reasonable and balanced view based on the physical attributes of the property.

This can therefore be a subjective process and determining whether or not an annex qualifies as a dwelling for MDR purposes may subject taxpayers to queries from HMRC given it is in HMRCs best interests that the annex does not qualify as a dwelling!

How can ETC Help?

ETC Tax are qualified and specialist tax advisers who have helped a number of clients make successful claims for MDR. With HMRC actively challenging MDR claims, it would be worth getting advice from a specialist who is familiar with the existing and growing case law and can present the best possible case for a claim.

If you think you may have grounds for a claim, please do not hesitate to get in touch. We are happy to review your circumstances and provide our initial thoughts on the prospects of an MDR claim.

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