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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.
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.
In Fiander  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.
A similar decision was reached in Merchant  TC 07783, where access to the basement annexe was via a common hallway in the main house.
In Partridge  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.
Similarly, 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. 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.
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:
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.
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