Merchant v HMRC – Where Does the Multiple Dwelling Boundary Lie?

Author

Rohan Manro

A tax adviser, Rohan successfully completed and passed his final CTA examinations (Advisory & Application and Interaction for owner-managed businesses).

Multiple Dwellings – The Current Environment

We are experiencing many enquiries from individuals and businesses seeking to make claims and recover a repayment from HMRC in relation to multiple dwelling relief.

Multiple dwellings relief offers taxpayers a reduction in SDLT where it can be demonstrated that a purchase involved the acquisition of two or more self-contained dwellings. Whilst this may sound straightforward, a lack of defined conditions leaves the availability of the relief open to interpretation.

HMRC are clearly showing an interest in claims for multiple dwellings relief with this decision being released shortly after HMRCs success in the recent case of Fiander as digested by my colleague here.

MDR & HMRC – The Facts

The taxpayer sought to make a claim for multiple dwellings relief on the basis that the annex consists of the key requirements for it to be suitable for use as a dwelling including:

  • The entire lower ground floor of the building
  • A kitchen which was suitable for that purpose
  • Bathroom with a toilet
  • Living and sleeping accommodation
  • Cooking, washing and sanitary amenities

Whilst these factors are prima facie indicators that a property is suitable for use as a dwelling, other subsidiary factors did not support the position. It was determined by HMRC in the course of an enquiry that:

  • The annex was not separately registered at the Land Registry
  • No evidence was provided to suggest that the annex could be sold separately from the main property
  • The annex was not separately registered for council tax
  • No evidence was provided to show the annex had a separate postal address
  • The annex did not have its own separate utility supply making the theoretical residents of the annex reliant on the residents of the main house for basic supply of electricity and gas
  • The floorplan provided does not distinguish between the main house and the annex

The Decision

The judge (referring to Fiander) applied the test of a reasonable person taking an objective view in considering whether the annex was suitable for use as a self-contained dwelling in the round.

In summary, the case was ruled in favour of HMRC on the basis that:

  • The property was not generally suitable for use as a dwelling except where there was a special relationship between the residents of the annex of the main house – which would not be the case between members of the public
  • There was an insufficiency of privacy and security for the occupants of both parts due to the accessibility and proximity of the annex with the main house

HMRC, MDR & Fiander – Conclusion

This case and Fiander illustrate that it is not enough to establish that a property, part of a property or a building can be used as a dwelling but that it is suitable for use as a dwelling taking into account the wider range of factors which might be expected by persons occupying a dwelling.

HMRC have an increasing appetite for challenging claims for multiple dwellings relief which will further define the criteria for whether a property is ‘suitable’ for use as a dwelling. As such, it would be prudent for taxpayers to seek advice from a specialist to determine the validity and grounds of a claim for multiple dwellings relief.

We have assisted several clients with successful claims for multiple dwellings relief. If you think you may be entitled to relief, please get in touch for an initial no-obligation assessment.

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