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The heat is being put on claims for Multiple Dwellings Relief (MDR) by H M Revenue & Customs (HMRC) as they continue to challenge a number of cases where they consider claims are being incorrectly made.
Four cases have been recently heard at the tax tribunals, all of which were found in HMRC’s favours by the tribunal judges and MDR claims denied.
There is concern that claims for MDR are being marketed in the same way that reliefs for R&D, capital allowances etc. were done, whereby companies solely set up to claim reliefs and charge fees based on a percentage of the savings are putting in claims without the correct technical knowledge, or in the hope the claim is allowed without HMRC looking in to it.
As a quick recap, 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 and can result in significant tax savings as it averages out the total consideration over the number of dwellings purchased.
It is therefore 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.
Fiander  TC 07676
An annexe was not sufficiently separate from the main residence as there was no separate access or any form of privacy or security from the main house. The Upper Tier Tribunal upheld the decision in 2021.
Merchant  TC 07783
Here access to the basement annexe was via a common hallway in the main house only, so again there was no sufficient separation and MDR was denied.
Partridge  TC 07991
A similar conclusion to Fiander was decided upon, as access to the bathroom and a utility room in the annexe was maintained from the main house.
In Doe  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. It was again held that insufficiency of privacy and security for the occupants of both the main house and the annexe meant MDR was denied.
The common theme that seemed to be emerging from these cases was that the test for a single dwelling is a strict one, with the focus on these being on separation, security and privacy from the main house to identify a separate dwelling.
In the Fianders case, paragraph 48 of The Upper Tribunal’s decision in 2021 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:
From the cases above, it is safe to say that the courts will apply the tests strictly and HMRC are reviewing a lot of MDR claims against land registry records and sales information to check the validity of any claims before following up with the taxpayer to challenge the claim.
At ETC Tax, we prepare detailed advice reports to set out whether MDR is available to the sale of a property and will take an objective view of the changes of a claim for MDR being successful should it be reviewed by HMRC.
If you or your client are considering making an MDR claim or would like support with an existing claim, please do not hesitate to get in touch.
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