Stamp Duty Land Tax: Multiple Dwellings Relief case hinges on the lack of a door

In the recent case of Keith Fiander and Samantha Brower v The Commissioners for Her Majesty's Revenue and Customs [2020] UKTT 00190 (TC), the First-Tier Tribunal Tax Chamber has considered the availability of Multiple Dwellings Relief (MDR) against Stamp Duty Land Tax (SDLT) where a property is sold with an annex.

The case

Mr. Fiander and Ms. Brower (the Appellants) purchased Hemingford House, Geddington near Petersfield in April 2016 for £575,000. The Tribunal set out the following features of the property:

  • A detached property consisting of: a main house; an annex situated to the rear of the main house and connected with it by a corridor; a garage; and a summer house.
  • The annex comprised a sitting room, a kitchen/utility room, a bedroom, and a shower room.
  • It could be accessed from the outside via glass "French doors", separating an outside wood "decking" area from the sitting room. It had a flat roof (in contrast to the pitched roof of the main house).
  • A corridor connected the main house and the annex. To use it to walk from the main house to the annex, one had to step down a single step, turn left, walk a few steps (about equal to the length of one of the bedrooms), and then turn right and go up one step.
  • There were door jambs in place at the point at which one stepped down from the main house into the corridor (but no door).
  • The property was unoccupied at the time of purchase and was in some degree of disrepair – the heating was not working (the boiler needed replacing); there were problems with damp such that some of the flooring needed replacing.
  • The annex did not have its own separate postbox, council tax bill, or utility supply.
  • The "Rightmove" website described the property as having three bedrooms ("bedroom 1" being in the annex) and two loft rooms. It did not mention the annex as such.
  • The local council had sent post addressed to "Geddington annex".

The difference in tax with and without MDR was £10,000.

The Law

The Finance Act 2003 (FA03) at section 55 sets out the amount of SDLT due in respect of chargeable transactions. Schedule 6B sets out the relief available for MDR under section 58D.

MDR only applies if more than one dwelling is acquired, and what counts as a dwelling is set out in schedule 6B:

"(2) A building or part of a building counts as a dwelling if –

(a) it is used or suitable for use as a single dwelling …"

The way in which the relief is calculated is rather complex, but the intention is that those purchasing multiple dwellings are not taxed as if they were buying one large property, but given tax treatment more in line with the purchase of a number of single dwellings separately.

Application to this case

The Tribunal considered whether the main house and annex were, at the time of purchase, each suitable for use as a single dwelling. The Tribunal could not consider actual use, since the property was empty.

"Suitable for use"

Suitability for use was approached as an objective determination, to be made on the basis of the physical attributes of the property at the relevant time, from the perspective of a reasonable person, observing the physical attributes of the property, at the time of the transaction.

The Tribunal noted that the annex adequately accommodated sleeping, eating, cooking, and washing and sanitary needs, and a place to sit and relax. The Tribunal also noted that the annex was physically distinct from the rest of the property, enabling an occupant to live there without any loss of privacy, including by having to cross through communal areas.

Distinct separate living

The Tribunal noted that there were circumstances in which it might be possible to have distinct separate living accommodation, despite the lack of any physical secure separation of the two. For instance, where there is a very particular kind of relationship between the occupants of the two parts. The Tribunal hypothesised such as where the annex is occupied by an older relative, grown up children of the occupants of the main house, or a lodger, provided this arrangement gave adequate privacy and security to occupants of both parts of the property, given family or other bonds of trust.

The Tribunal was of the view that these "specific circumstances" would effectively be outside of the remit of the objective reasonable person observing the property, such that they would not consider each part suitable for use as a separate dwelling.

Effect of the corridor

The Tribunal was also of the view that the effect of the corridor, joining the two parts, made them unsuitable for use on a stand-alone basis, and noted that the property was marketed as one single dwelling.

Minor physical adjustments

The Appellants also pursued an argument that with a relatively minor physical adjustment being carried out, the annex could be used separately, even if that was not possible now (in this case, the relatively minor adjustment would be erecting a barrier between main house and annex). As such, given the language of schedule 6B - "used or suitable for use" – the intention of the statute cannot have been to allow HMRC to shut its eyes to such a common sense alternative.

The Tribunal did agree with this line of argument, but not its application. The Tribunal was of the view that new physical features could not be introduced to enable a new and different kind of use, even if the new physical features are relatively easy or quick to install. The (hypothetical) installation of dual locking doors (as in adjoining hotel rooms) was considered not to be easy or quick enough.

The Tribunal was not taken by arguments about the annex having a separate postal address, or no separate services or council tax status, attributing them with little weight.

Conclusions

It appears that it would have taken very little to swing this matter in favour of the Appellants, given that the Tribunal appears to have attributed most of its reasoning to the lack of a door or barrier between the parts of the property, and the manner in which it was marketed. Since a door jamb actually featured in the corridor between the two parts, it may be that a door did actually feature at some point, and it may well have been possible to market the property as two separate parts.

Vendors might consider the tax treatment of property in advance of advertising it for sale, in order to give perspective purchasers a fighting chance of availing themselves of reliefs. It is not being suggested here that building works are undertaken to split up otherwise single dwellings. However, as a minimum, it is certainly the case that the marketing materials have often proved fatal to many appellants against SDLT decisions. Beyond that, simply documenting and recording existing use arrangements is often very helpful, particularly with mixed-use claims.

One final point regarding any HMRC challenge is that in most cases HMRC has only 9 months from the date of filing a return to query it. However, buyers are required to retain transaction documents for 6 years, and HMRC has powers to revisit the assessment for up to 20 years, depending on its reasons for doing so. For those who require more finality, it is possible to make a voluntary disclosure.