Tax Consultant Carter Backer Winter
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FTT refuses two dwelling claim to the tune of £10k

A couple purchased a house with an annexe, claiming they were two separate dwellings which would benefit from multiple dwellings relief (MDR). The first tier tribunal (FTT) decided it was one house, costing an extra £10,000 in stamp duty land tax (SDLT).

31st Jul 2020
Tax Consultant Carter Backer Winter
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In 2016 Keith Fiander and Samantha Brower (the taxpayers) purchased a property for £575,000. The purchase consisted of a main house, an annexe, a garage and a summer house. Both annexe and main house both had its own separate living accommodation.    

The annexe could be accessed either from a connected short corridor or if from outside via French doors.  It contained a sitting room, kitchen/ utility room, bedroom and a shower room, all of which was in some disrepair at the time of purchase. 

The annexe did not have its own post box, council tax or separate utility supply. The corridor linking the house and annexe could have been separated by a door. Door jambs were in place, albeit no door at the time of purchase.

The claim

The taxpayers made a claim under MDR treating the main house and annexe as two separate dwellings. Following numerous exchanges with HMRC regarding the relief claimed, an appeal was made to the tribunal (TC7676). 

What is MDR?

Relief is available where the main subject matter of a transaction contains at least two dwellings, bought either in a single transaction or as part of a linked transaction. 

Where the relief is available SDLT is calculated on the average price of the dwellings, rather than in respect of the actual value of each dwelling. The relief could result in paying lower rates of SDLT.

The dispute

As the annexe was not occupied at the time of purchase, the judge needed to consider whether it could be suitable for use as a dwelling separate to the main house at the effective date of purchase. 

The FTT stated that a building or part can be suitable for use as a dwelling only if it accommodates all of a person’s basic domestic living needs; to sleep, to eat, to attend to one’s personal and hygiene needs, and to do so with a reasonable degree of privacy and security. 

Privacy and security can be achieved in different ways depending on the relationship between both occupants. 

No weight or consideration was placed by the FTT on the application of council tax, separate utilities or a separate post box.

The outcome

The appeal was dismissed as the FTT which found that the annexe was not separate to the main house and therefore MDR was not available. This resulted in a further £10,000 of SDLT being payable.  

At the time of completion, the annexe was in disrepair, however, it was still seen to be suitable for use as a dwelling. The FTT considered that reference to a single dwelling under MDR suggested more than just separate living accommodation. 

An objective observer would have seen no physical barrier between the annexe and main house, sufficient enough for a member of the public to occupy the annexe on a stand-alone basis. 

It was not enough to determine suitability for use on the assumption that a door or some other physical barrier would be introduced to the corridor post-completion.

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