VAT Director Rayner Essex
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SDLT: Two apartments combined but no refund

Two adjacent apartments were purchased to convert them into the buyers’ main home, but HMRC refused to refund the SDLT surcharge they paid on the second purchase. 

15th Jan 2021
VAT Director Rayner Essex
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Stamp duty

New home

The taxpayers (Moarff and Mozhdeh) purchased two adjoining apartments; number 31 on 24 May 2017 and number 38 on 6 June 2017. The delay between the purchases was due to the sellers being different persons and it was not possible to complete both deals at the same time.

The 3% SDLT additional dwelling surcharge was paid on both apartments because at the time of purchase the taxpayers had not disposed of their main residence. Once acquired, the apartments were converted into a single-family dwelling.

Old home

Having disposed of their main residence in July 2018 the taxpayers applied for a refund of the SDLT 3% surcharge paid in respect of both apartments. HMRC granted a refund of the higher rate SDLT paid on the first purchase (number 31 acquired in May 2017) but not the second (number 38 acquired in June 2017). 

The taxpayers’ point was that they only ever intended to have one main dwelling, but required them to buy two separate dwellings to achieve this and the delay was outside their control. 

The tribunal heard that number 38 was not considered to be the taxpayers’ main residence at time of purchase as it was unsuitable as a main residence. Also, number 38 was purchased with the intention to amalgamate it with number 31 whereupon they and their sons would reside.

Tribunal view

It was clear the taxpayers did not intend number 38 to be their only or main residence, the wording of the legislation is clear that the purchase must be the same property upon which the taxpayer intends to use as their only or main residence. The dwelling (number 38) was not the same dwelling which the taxpayers intended to be their main residence; that would be the amalgamated property that combined apartments 38 and 31.

The tribunal went further and held a view that number 38 is not occupied as the main residence, the sons occupied number 38 but the day-to-day family life took place in number 31. Whilst living arrangements were not the determining factor, as the intention at time of purchase is key. At time of purchase, the intention was that neither number 38 nor number 31 were to be a main residence.

The sleeping arrangements nonetheless assisted the tribunal in its thinking, concluding that at time of acquisition and before conversion had started, that neither apartment was suitable for use as main residence by the taxpayers, but they were occupied as two separate apartments until conversion ended. In effect, the replacement main residence was the combined apartments, the combined apartments were in effect a “new” dwelling in its own right.

This is reflected in the judgment: “As a matter of construction of the words used in the legislation, it is clear that the Appellants did not intend the dwelling which is Number 38 to be their only or main residence. We agree with Dr Schryber that the purchased dwelling must be the same as the dwelling which the purchaser intends should be their only or main residence. In this case the ‘dwelling’ which is Number 38 is not the same as the ‘dwelling’ which the Appellants intended to be their only or main residence. That would be the amalgamated dwelling produced by the conversion of Number 31 and Number 38 into one dwelling.”


That is quite a tight definition and it is perhaps unfortunate that the taxpayer’s intentions were not something that sits within the drafting of the legislation.

If one were to slow down the transaction into its component parts; number 38 was never intended to be a replacement for the main home, nor was number 31. The end game was to acquire both and convert, but the final converted property was not the property the taxpayer purchased originally.

The appeal was dismissed and the higher rate of SDLT paid on number 38 was confirmed as due.

High stakes

The SDLT at stake was significant; number 38 was purchased for £5m and number 31 was purchased for £7.4m, with the total SDLT coming in at well over £1.5m. The outcome was a costly one for the taxpayer, and perhaps that’s why HMRC put up such a spirited fight.

I am not sure if a secondary position could have been taken in terms of applying multiple dwelling relief (MDR), which applies when purchasing two or more dwellings. An MDR outcome would still conclude with a significant amount of SDLT.


The circumstances in this case (TC07873) are perhaps an exceptional situation. However, it does infer that if a taxpayer purchased a dwelling, paid the SDLT surcharge, then demolished it in order to build a new dwelling, the refund of the surcharge may be difficult because the original property was never intended to be the replacement main dwelling.

As ever with SDLT, the devil is in the detail, and also in the interpretation of what was intended when the legislation was drafted. 

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