Multiple Dwellings Relief (MDR) is an optional relief that may be claimed on a purchase of two or more dwellings acquired either as a single transaction, or separate transactions that are linked with each other. The relief works by calculating the SDLT according to the average consideration for each dwelling and the liability would usually fall into lower rates and bands as a result.
A dwelling is defined as follows in the legislation:
7(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, or
(b)it is in the process of being constructed or adapted for such use.
(Paragraph 7(2), Schedule 6B, FA 2003).
Land associated with a dwelling for use as its garden or grounds is also taken as part of that dwelling for the purpose of the relief (paragraphs 7(3) and (4)).
The same definitions also apply in the equivalent legislation for Land & Buildings Transaction Tax (Scotland) (s.25-27, Schedule 5, LBTT(S)A 2013). For property in Wales, Land Transaction Tax (Wales) simply refers to requirement for the acquisition of “at least two dwellings” (s3(3), Schedule 13, LTTADA 2017).
The term “dwelling” is not further defined in the legislation and so takes its natural meaning. In various non-direct tax cases this has been taken to mean a building, or part of a building, which provides all the facilities necessary to enable a person or persons to live independently. The reference to “single dwelling” emphasises the need for a significant degree of separation or independence between dwellings in the same building or grounds and the question therefore revolves around the extent of facilities provided within each dwelling, such that they can be occupied as separate accommodation.
A recent First-tier tribunal case considered an appeal by the taxpayer against HMRC’s refusal of an MDR claim in circumstances that may be similar to your client’s (Keith Fiander & Samantha Brower TC 07676).
The property in question consisted of a large house, with an annexe, connected by a short adjoining corridor. It was accepted that the annexe did provide sufficient facilities to enable independent occupation; that it “adequately accommodated sleeping, eating, cooking, and washing and sanitary needs, not to mention a place to sit and relax”.
However, the Tribunal determined that an additional requirement for separate accommodation is for a “reasonable degree of privacy and security” and this was considered not to be met in this case due the absence of a lockable internal door between the annexe and main house. This is despite the annexe having its own external door into the shared grounds. The Tribunal noted that, in principle, this test can be met in the absence of a lockable door if other factors are present to create a sufficient degree of privacy and security, for example, physical separation between them. The Tribunal also noted that the property condition at acquisition is key to this requirement; the taxpayer’s argument that little work would be needed to create a suitable division was not accepted – “it would be wrong to determine “suitability for use” at the time of completion on the assumption that a door, or doors, or some other physical barrier, would be introduced to the corridor”.
Although not a feature of this case, previous cases have also highlighted the need for one dwelling to be accessed without passing through the living areas of another dwelling within the same building or location.
It is interesting to note that the fact that the annexe was not separately registered for utilities, or council tax was not considered as significant, in part relying on the earlier Council Tax case of Ramdhun v Coll (LO)  EWHC 946 – “we have not put a great deal of weight on the evidence that the annex had no separate utility meters or council tax status”.
Finally, the Tribunal considered the fact that the annexe was in a poor state of repair at the time of purchase, with a broken heating boiler, damp problems and need for some flooring replacement. A property must be “suitable for use” as a dwelling to be regarded as such but the problems “were not so fundamental as to render the property unsuitable as a place to live. Hence, in our view, the state of disrepair did not render the property unsuitable for use as a dwelling”. By way of contrast, a 2019 SDLT case (P N Bewley Ltd v HMRC  UKFTT 65 (TC) found that a derelict house in very poor condition was not “suitable” and therefore not regarded as dwelling, due to an absence of a heating system and the presence of asbestos.
The full text of the current case can be accessed via the following link –
You should consider your client’s position in the light of the above, particularly given that the two residences are physically connected in your client’s case in order to decide whether a claim for MDR is appropriate.
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