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Multiple Dwellings Relief Guide

Does your purchase qualify for MDR?

Does your purchase qualify for MDR? Use Cannon Chambers’ list of relevant criteria to help you decide.

Relevant Features HMRC's Published Guidance Facts – Annex or Outbuilding Facts – Main Dwelling Case Law
Suitability for use as a dwelling SDLTM00410: The test of whether a property is “suitable for use” as a single dwelling is a more stringent test than whether it forms a self-contained part of a larger dwelling. Furthermore, whether or not it is suitable for use as a single dwelling requires consideration of whether it is sufficiently independent to be considered a dwelling on its own. In the case where a building is considered to contain more than one dwelling, evidence will be needed to show that each ‘dwelling’ in question is sufficiently independent to count as a separate dwelling in its own right. In the absence of sufficient evidence, it may be decided that it is more appropriate to consider that there is one dwelling, not two or more. SDLTM00410 47. The HMRC internal manuals on SDLT contain various statements relating to the meaning of “dwelling” and “suitable for use as a single dwelling”, but these merely record HMRC’s views and do not inform the proper construction of the statute.

48. We must therefore interpret the phrase giving the language used its normal meaning and taking into account its context. Adopting that approach, we make the following observations as to the meaning of “suitable for use as a single dwelling”:

(1) The word “suitable” implies that the property must be appropriate or fit for use as a single dwelling. It is not enough if it is capable of being made appropriate or fit for such use by adaptations or alterations. That conclusion follows in our view from the natural meaning of the word “suitable”, but also finds contextual support in two respects. First, paragraph 7(2)(b) provides that a dwelling is also a single dwelling if “it is in the process of being constructed or adapted” for use as single dwelling.

So, the draftsman has contemplated a situation where a property requires change, and has extended the definition (only) to a situation where the process of such construction or adaption has already begun. This strongly implies that a property is not suitable for use within paragraph 7(2)(a) if it merely has the capacity or potential with adaptations to achieve that status. Second, SDLT being a tax on chargeable transactions, the status of a property must be ascertained at the effective date of the transaction, defined in most cases (by section 119 FA 2003) as completion. So, the question of 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 the preceding analysis is that a property may be in a state of disrepair and nevertheless be suitable for use as either a dwelling or a single dwelling if it requires some repair or renovation; that is a question of degree for assessment by the FTT.

(2) 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 question of the extent to which they necessarily include the need to prepare food should be dealt with in an appeal where that issue is material.

(3) The word “single” emphasises that the dwelling must comprise a separate self-contained living unit.

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

(5) 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.

(6) The test is not “one size fits all”: a development of flats in a city centre may raise different issues to an annex 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 in terms of bricks and mortar may vary.

(7) 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 be reliably laid out of relevant factors.Ultimately, the assessment must be made by the FTT as the fact-finding tribunal, applying the principles set out above.

Upper Tribunal Fiander

106. In the context of SDLT, a person buying a property would want and expect that property to contain all the facilities for them to live a separate and independent life, including facilities for the preparation of food, and they would expect to be able to prevent others from entering their property.


107. In assessing whether this test is satisfied, one might ask whether an owner of what was said to be two dwellings was reasonably likely to be able to sell them to unconnected purchasers, assuming that the properties would remain as they were at the EDT. It seems to me that an average purchaser would not buy the annexe, on this basis, because it has no kitchen facilities and an average purchaser would not buy the main house because it lacks privacy and security. Mobey
Sleeping Area A dwelling would be expected to have an area available for sleeping. A room to sleep would normally have lighting, power points, and a window and be of a reasonable size. It will normally be separated from a ‘living area. SDLTM00425 53. We begin with the physical characteristics of the property that point towards main house and annex each being suitable for use a single dwelling.

54. The physical attributes of both main house and annex were ample to accommodate the basic domestic living needs of occupants of either; the annex was obviously smaller than the main house, but it adequately accommodated sleeping, eating, cooking, and washing and sanitary needs, not to mention a place to sit and relax; and the main house provided these on a larger scale. First Tier Tribunal Fiander
Living Area A dwelling would be expected to have a suitable area for day-to-day living, including space for chairs, tables, cupboards, furniture and to have visitors. The room would normally have lighting, power points, heating and a window. SDLTM00425 53. We begin with the physical characteristics of the property that point towards main house and annex each being suitable for use a single dwelling.

54. The physical attributes of both main house and annex were ample to accommodate the basic domestic living needs of occupants of either; the annex was obviously smaller than the main house, but it adequately accommodated sleeping, eating, cooking, and washing and sanitary needs, not to mention a place to sit and relax; and the main house provided these on a larger scale. First Tier Tribunal Fiander
Kitchen A dwelling would be expected to have an area where a meal can be prepared and somewhere suitable to eat it (not necessarily in the same place). It is not necessary for a kitchen to have a cooker or white goods such as a fridge or dishwater present at the effective date of the transaction, because these are sometimes removed on a house sale. However, there should be space and infrastructure in place e.g. plumbing for sink, power source for cooker etc. SDLTM00425 A lack of food preparation and washing up facilities weighs against being suitable for use as a single dwelling, although it is not determinative. [90] Wilkinson [103] 103. Not all of these factors have equal weight. The most important factors seem to me to be the lack of privacy and security for the main house and the lack of food preparation facilities in the annexe. Mobey [27]

(12) Objectively, there are sufficient facilities to store food, including fresh food storage in a fridge. There is a sink and a small work top to enable preparation to take place. The area is small but that is not significant.

(13) The issue is whether food could safely be cooked in the kitchen to enable the premises to be regarded as suitable for use as a dwelling. The arrangements would have to be capable of satisfying building and fire regulations to allow the annex to be lawfully let. I found it incredible that Mrs Mullane had no knowledge, more than two years after making the claim for MDR in respect of the annex, whether any building regulation control or fire certificates would be required to lawfully let the annex. HMRC had raised the issue of fire safety but not identified specific regulatory impediments to the lawful letting of the property.

(14) In my experience an electric accessory should be positioned to enable safe operation and avoid the harmful effects of heat, and steam from cooking activities or splashing from use of a sink or wash basin and that a cooker should be a suitable distance away from the sink.

(15) The photographs of the location of the cooker in the annex attached to the second witness statement of Mrs Mullane show:
(a) The cooker standing on a low table immediately in front of the sink and between the sink and the bannister.
(b) There is very little space, if any, on either side of the cooker.
(c) The bottom of the cooker is just below the level of the sink.
(d) The cooker is about 12 inches high and comprises a grill/oven and two hobs on top.

(16) I cannot see how the cooker can be safely operated in order to avoid splashes from the sink, nor now the hobs can be operated safely given the height of the cooker. I would have the same concerns if the microwave were placed on the counter by the sink or replaced the large cooker on the table in front of the sink.

(17) HMRC raised concerns about the open-plan nature of the kitchen from a fire prevention perspective. I share those concerns. Fire alarms and fire doors would be needed to give the occupants of the upper room time to escape in case of fire.

(18) In my view, MDR is capable of being claimed in a situation where premises are capable of satisfying building regulations but all that is required at completion is for a certificate to be obtained. Mullane

Other eg. Short Connecting Corridor “Due to the short, open corridor connecting them, the main house and annex were simply too closely physically connected for either to be suitable for use as a “single” dwelling. Rather – and this, indeed, is how the property was marketed, on the evidence of the “rightmove” materials – the property was eminently suitable for use as one joined dwelling.”

[62] First Tier Tribunal Fiander
Other eg. Split accommodation “…the occupants of the main house, on route to or from the bathroom at night and perhaps in some state of undress, potentially meeting occupants of the annexe in the communal areas of the Property is not a fanciful notion but a very real one given the layout of the Property.” [83] Andrew Doe

“..the fact that the occupier of the Disputed Area would need to walk outside to go from the Bedroom to the Utility Room and the Utility Room. This issue is exacerbated by the fact that the Utility Room has not been shown to be suitable for sitting in to eat as it contains a toilet and on the basis of the photographs and plan has insufficient space for seating. The occupier would therefore need to carry food prepared in the Utility Room back to the Bedroom to eat. This consequently undermines the coherence of the Disputed Area as a single dwelling;” [81] Wilkinson
Independent Entrances It is important that each dwelling has sufficiently independent access. This could be a separate entrance from the outside of the building, or from common parts of the building such as in the case of flats. Typically, there will be common parts (such as hallways and staircases) which each dwelling will have access to via a lockable door. SDLTM00425

27. This issue must be determined by considering all the facts which I have outlined at [8] above. I comment on those facts as follows:

(1) The shared use of the glass conservatory between the main house and the annex is irrelevant. It is a common feature in the UK housing market that two separate dwellings can share a common entrance and hall. It is irrelevant that the previous owner created the glass conservatory to link the main house to the annex for the better enjoyment by the main house of the annex. The motives of the previous owner are not relevant to the issue to be determined at the date of completion of the purchase by the Appellants.

(2) The glass conservatory is operating as the dividing line between the main house and the annex. It provides an effective geographic separation of the two parts. 9

(3) The annex has its own front entrance which is accessed via the shared glass conservatory. There is also a rear access via a patio. This is compatible with the annex being suitable for use as a separate dwelling.

(4) The main house has its own front entrance and further entrances via the shared glass conservatory each of which has its own lock. This is compatible with the main house being suitable for use as a separate dwelling. The occupants would enjoy the necessary security.

(5) In terms of necessary security required by a tenant of the annex vis a vis the outside world, the lock on the glass conservatory door and the security lantern outside would provide adequate protection. I expect that every tenant would also require a lock on the door to the annex to secure the tenant’s privacy against the occupant of the main house but I think that alone would not prevent the annex being regarded as suitable for use as a dwelling at completion albeit that a lock would be needed after completion. Mullane

Privacy and interconnecting doors A single dwelling requires a degree of privacy from other dwellings. It is unusual, but possible, for adjoining dwellings to have interconnecting doors. It is relevant whether the door between the parts can be locked, or is readily capable of being made secure from both sides. The more interconnecting doors that there are between “units” the less likely they could be reasonably considered to be separate single dwellings. The type of door is also important to consider e.g. whether the door has adequate fire proofing and sound proofing to be considered suitable to separate the dwellings. SDLTM00425

Lockable doors – “weighs heavily” [90] and “fundamental issue” [93] : Wilkinson 27. This issue must be determined by considering all the facts which I have outlined at [8] above. I comment on those facts as follows:

(1) The shared use of the glass conservatory between the main house and the annex is irrelevant. It is a common feature in the UK housing market that two separate dwellings can share a common entrance and hall. It is irrelevant that the previous owner created the glass conservatory to link the main house to the annex for the better enjoyment by the main house of the annex. The motives of the previous owner are not relevant to the issue to be determined at the date of completion of the purchase by the Appellants.

(2) The glass conservatory is operating as the dividing line between the main house and the annex. It provides an effective geographic separation of the two parts.

(3) The annex has its own front entrance which is accessed via the shared glass conservatory. There is also a rear access via a patio. This is compatible with the annex being suitable for use as a separate dwelling.

(4) The main house has its own front entrance and further entrances via the shared glass conservatory each of which has its own lock. This is compatible with the main house being suitable for use as a separate dwelling. The occupants would enjoy the necessary security.

(5) In terms of necessary security required by a tenant of the annex vis a vis the outside world, the lock on the glass conservatory door and the security lantern outside would provide adequate protection. I expect that every tenant would also require a lock on the door to the annex to secure the tenant’s privacy against the occupant of the main house but I think that alone would not prevent the annex being regarded as suitable for use as a dwelling at completion albeit that a lock would be needed after completion. Mullane

94. The factors indicating that Glenmore is one dwelling not two are as follows.

95. .......

96. The occupants of the main house could not deny entry to the occupants of the annexe. The door between the annexe and the reception hall could not be locked on the main house side, compromising the privacy and security of the occupants of the main house. Mobey

Control of Utilities A single dwelling should be able to control all or most of the utility services supplied to it. Where a property has a physical configuration which suggests it might be considered two dwellings (“main property” and “annex”) but very few or no utilities can be controlled by the annex-dwellers without needing to enter another dwelling to do so, it is likely that the “annex” should not be considered a single dwelling in its own right. SDLTM00430 “…we have not put a great deal of weight on the evidence that the annex had no separate utility meters or council tax status – this points in the same direction as our conclusion, but we did not place great weight on these factors. Similarly, we did not place great weight on the evidence of a separate postal address for the annex (we acknowledge that the sending of post to the annex was supportive of its “single” status, but do not consider this a very significant factor).” [69] First Tier Tribunal Fiander
Electricity Electricity Dwellings should have an electricity supply which can be switched on and off from its own consumer unit, within the dwelling or a communal area. SDLTM00430
Cold Water Dwellings require a supply of water fit for human consumption/use. The water supply should be able to be turned off from its own stop tap, accessible from within the dwelling or in a communal area. SDLTM00430
Heating Dwellings will normally have their own independent system(s) for heating, although supplies may occasionally be shared, perhaps by way of a renewable energy scheme. A dwelling would be expected to be able to manage and turn their own heating system on or off (for example whilst works are done) without having to go through another dwelling. SDLTM00430 “…the fact that the hot water control and part of the control for the central heating is located in the Utility Room with no separate control for the Main Property. Realistically arrangements would have to be put in place to allow the Main Property access to those controls and to agree the settings to be applied to the hot water and heating, or to agree that the occupier of the Disputed Area controlled those settings. No such arrangements were in place at the time of the purchase of the Property and the feasibility of the occupiers of the Main Property being satisfied to proceed on any such basis must be in very real doubt if the Disputed Area was occupied by people with no family connections or other bonds. I am satisfied that the phrase use as a “single dwelling” implies that the property in question should be capable of being occupied by independent third parties.” [81] Wilkinson
Gas Where a dwelling has a gas supply, they should be able to isolate it from within their property or from a shared area. SDLTM00430
Legal Constraints The property may be subject to legal conditions, including planning restrictions and restrictive covenants, whether public or private law, which inhibit use as a separate dwelling. These conditions will be a factor in considering suitability of use as a dwelling, although where these conditions are not being respected for any reason, actual use will prove more helpful than theoretical use. We placed no weight on the evidence regarding the “restrictive covenant” in the land registry, which was unclear in itself and in its implications for the issues at hand.” [69] First Tier Tribunal Fiander
Council Tax Where a property has been assessed for council tax purpose as comprising more than one dwelling, this is an indicator that for SDLT purposes there also may be more than one dwelling. However, the definition of dwelling for council tax purposes is different from that of Stamp Duty Land Tax, and hence this factor will not be a strong indicator on its own. SDLTM00430 The lack of a separate postal address or Council Tax assessment has little impact. [83] Wilkinson “…we have not put a great deal of weight on the evidence that the annex had no separate utility meters or council tax status – this points in the same direction as our conclusion, but we did not place great weight on these factors. Similarly, we did not place great weight on the evidence of a separate postal address for the annex (we acknowledge that the sending of post to the annex was supportive of its “single” status, but do not consider this a very significant factor).”

[69] First Tier Tribunal Fiander (8) That there is only one council tax bill would not prevent the annex from being regarded as being suitable for use as a dwelling at completion. If the annex had already been in use as a separate dwelling before completion, separate council tax registration at completion might be required to qualify for MDR. However, in this case the claim for MDR is on the basis that the property is suitable for use as a dwelling, and that implies that the separate council tax registration is not required at completion and can be obtained as that must be a mere formality. Mullane
Marketing Materials Estate agents marketing material is a useful tool to assist in consideration of how many dwellings a property might comprise. However, an estate agents’ main objective is in selling the property, not in providing legislatively accurate definitions of dwellings, so this information is not determinative. SDLTM00430

102. The estate agent’s particulars presented Glenmore as a single property with a lower ground floor which comprised a swimming pool, snug, two guest bedrooms and an integral garage.

103. Not all of these factors have equal weight. The most important factors seem to me to be the lack of privacy and security for the main house and the lack of food preparation facilities in the annexe. I also consider the description of the building for which planning permission was granted and the way in which the advertising materials presented the property to be important. Both strongly suggest that Glenmore was a single dwelling and the whole of Glenmore was certainly suitable for use as a single dwelling. Mobey

[62] Due to the short, open corridor connecting them, the main house and annex were simply too closely physically connected for either to be suitable for use as a “single” dwelling. Rather – and this, indeed, is how the property was marketed, on the evidence of the “rightmove” materials – the property was eminently suitable for use as one joined dwelling. First Tier Tribunal Fiander

Seperate Posts and Bills Individual letter boxes, utility bills and phone bills will all provide some evidence of separate dwellings, but a lack of them will not be a deciding factor to determine that there aren’t separate single dwellings. SDLTM00430 The lack of a separate postal address or Council Tax assessment has little impact

[83] Wilkinson "…we have not put a great deal of weight on the evidence that the annex had no separate utility meters or council tax status – this points in the same direction as our conclusion, but we did not place great weight on these factors. Similarly, we did not place great weight on the evidence of a separate postal address for the annex (we acknowledge that the sending of post to the annex was supportive of its “single” status, but do not consider this a very significant factor).” [69] First Tier Tribunal Fiander

(9) That there is a single utility bill would not be an absolute barrier to the letting of the accommodation to a tenant. Given Mrs Mullane has experience of consumption of water, gas and electricity I infer she will be able to identify the consumption by a tenant of the annex and it is not uncommon for the utility bills to be included in the rent. I expect that the lack of separate meters would be a barrier to sell the annex to a purchaser. But given the objective of the legislation is to increase the number of properties available to rent that would not be an impediment to claim MDR. Mullane

Cannon Chambers is a London tax chambers. Cannon Chambers have an in-depth understanding of the complexities of property tax law, particularly Stamp Duty Land Tax and handling cases with HMRC.

We offer video consultations, saving you time and money in travel, or face-to-face meetings if that is preferable. For more information about how Cannon Chambers can help with Stamp Duty enquiries and Multiple Dwellings Relief, contact us here.

What is MDR?

Multiple Dwellings Relief can provide a reduction in Stamp Duty Land Tax (SDLT) for buyers of residential properties that contain more than one dwelling.

If you buy a property with more than one dwelling, the stamp duty is calculated on the average value of all the dwellings, rather than on each individual dwelling.

This presents significant savings if, for example, you are buying a larger house with smaller dwellings on the property. The lower value dwelling(s) will bring down the average value of the dwellings within the purchase, meaning lower stamp duty.

For example, if you buy a house worth £800,000, which has an annexe worth an additional £100,000 (total SDLT = £35,000), the average value of each dwelling within the purchase would be £450,000.

SDLT on a dwelling valued at £450,000 is £7,500.

Total SDLT on two dwellings worth £450,000 is £15,000.

That’s a £20,000 saving on SDLT.

What is a “Dwelling?”

The criteria for a single dwelling usually include:

  • Separate front door
  • Separate utilities
  • Own kitchen /cooking facilities
  • Own bathroom
  • Suitable for private and secure residential use

Some of these criteria may not be clear in certain properties, so it’s always worth getting advice on whether your purchase qualifies as a multiple dwelling.

What is a “Linked Transaction”?

A ‘linked transaction’ is when multiple property purchases are made between one buyer and one seller or persons connected with them. Multiple Dwellings Relief can be claimed for linked transactions.

If there is a marked difference in value of properties within the purchase (for example, three larger homes and several smaller houses), the average value of the properties will carry lower SDLT than when calculated separately on each of the homes.

With some transactions, the savings may be negligible, but in other cases, it is beneficial to claim MDR.

Who Can Claim Multiple Dwellings Relief?

Any buyer can claim MDR on eligible properties.

Who Can’t Claim Multiple Dwellings Relief?

You cannot claim MDR on a transfer of a freehold reversion or head lease, in respect of any dwelling that is subject to a lease that was originally granted for more than 21 years.

How Do You Calculate Multiple Dwelling Relief?

Take the total consideration attributable to the dwellings in either a single transaction or a linked transaction, and divide that by the number of dwellings. The SDLT on this average price can be calculated using an online calculator. To work out your total SDLT payable on the entire purchase, multiply the amount of SDLT found on the average price by the number of dwellings.

How Do You Claim Multiple Dwelling Relief?

MDR is not automatic and must be claimed in the SDLT return using relief code 33. Amendments to the SDLT return can be made within 12 months of the filing date of the original return.

In most cases, your conveyancing solicitor will apply for Multiple Dwellings Relief although they may request that you obtain a specialist opinion on whether MDR can be claimed. However, if you have bought a property which included a separate dwelling in the last year and you did not claim MDR at time of purchase, you may be entitled to reclaim MDR.

An expert tax lawyer can advise you on claiming Multiple Dwellings Relief and make the claim for you. In some cases, if your property lawyer has been negligent in not informing you of MDR options, it may be possible to bring a case against that individual.

How Can Cannon Chambers Help?

The rules on SDLT are often complex, particularly for non-UK residents, so it is always worth consulting an impartial and experienced tax professional before claiming MDR or committing to a purchase and payment of SDLT.

Cannon Chambers has long standing expertise in property law and the complexities of Stamp Duty Land Tax. Offering impartial legal advice and representation, we work on a fixed-fee basis agreed with you in advance, so there are no financial surprises as a case progresses.

Cannon Chambers offer straightforward advice and guidance in claiming Multiple Dwellings Relief. We carry out consultations remotely, saving you travel time and money, or we can arrange face to face meetings if that is preferable.

To find out how Cannon Chambers can help with your MDR or any other matter concerning SDLT, contact us here.

 

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