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The rise of the stamp duty cowboys

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Stamp duty’s popular sidekick, multiple dwellings relief, is in a state of flux allowing some dubious companies to take advantage.

28th Jun 2022
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Stamp duty land tax (SDLT) has been thrust into the limelight lately as it is a tax that can offer taxpayers substantial savings, provided the purchase qualifies for relief. 

The most popular SDLT relief is multiple dwellings relief (MDR), which is applicable when a purchase includes more than one residential dwelling. Additional dwellings come in all shapes and sizes, for example, converted barn, cottage within the grounds, converted garage or internal annex. Often these are occupied by elderly relatives or au pairs. 

If the relief is applicable the tax is calculated on each individual dwelling. For example, if the purchase price is £2m and the property includes two dwellings then the tax is calculated on two purchases each valued at £1m. This is the case regardless of the size of each dwelling. 

As the savings can be substantial it has given rise to spurious claims and consequently over the past two years there have been a considerable number of cases heard in the tax tribunals and higher courts.

The result is dwellings need to include facilities in order for an inhabitant to cook and prepare food, live, sleep and attend to personal hygiene needs. In addition to these facilities, a dwelling must be private and secure. This means it has a private entrance and any internal doors are lockable on either side. Furthermore, case law has brought to light the requirement for independent control over utilities. This means each dwelling must be able to control its heating, hot water, gas supply (gas shut-off valve), cold water (water stop tap), fuse box and boiler. 

Unknowingly overpaid

Certain companies have been known to scour Land Registry and Rightmove for recent purchases and send information letters to purchasers claiming they may have unknowingly overpaid SDLT. The letters hook in purchasers by stating the amount of tax they may have overpaid by. 

Some of these letters will be correct and tax savings may be available, however, the recent tax courts judgments have tightened the availability of relief meaning a large number of dwellings will not qualify. 

HMRC states that up to one-third of MDR refund claims are incorrect. Now while we do not doubt this is true, some of the incorrect claims are likely to have submitted before certain test cases were heard in the tax courts. This means at the time the claims were submitted the annexes met the criteria as it stood but later fall outside of the relief. 

That being said, some agents have utilised some creative licence as HMRC has highlighted some of the more dubious claims:

  • A claim that a bedroom could be a separate dwelling and in line for claiming MDR because it had an en-suite and a built-in wardrobe that could be a kitchen if you added a microwave and a kettle.
  • An individual who claimed their house was not wholly residential because a paddock behind the garden was used occasionally to keep a neighbour’s horse. The agent advised that they were due lower stamp duty rates because the presence of the paddock made the transaction a mix of residential and non-residential property, which would incur a lower stamp duty payment.
  • A new owner of a six-bedroom house claimed it was not a wholly residential property because a room above a detached garage was used as an office.

Trusted adviser

If your client receives a letter claiming they have overpaid your tax liability, consult an expert tax adviser in this area. Have a trusted adviser perform a review and consider whether there is scope for a refund and to highlight the potential issues associated with such a claim. 

HMRC’s enquiry window is nine months from either the reporting deadline (14 days after the effective date, which is completion in most cases) or nine months from the date they received the amendment claim. If your client has submitted a claim and received a refund but they are concerned about a subsequent enquiry, refer to your engagement terms. 

Most claims are likely to operate under a “no win, no fee” basis, however, this means their fee is refundable but the taxpayer is still liable to repay the tax and any accrued interest. In most cases a penalty is unlikely to be levied if an adviser was appointed and the information provided in the claim is factually correct. 

The goal posts are constantly moving with this relief as it is under scrutiny but if your client decides to make a claim, use a reputable agent.

Replies (9)

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By Justin Bryant
28th Jun 2022 13:41

This is now very old news and if you want some examples see: https://www.accountingweb.co.uk/any-answers/interesting-failed-sdlt-mdr-...

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By ireallyshouldknowthisbut
28th Jun 2022 15:50

Is it correct that its a REQUREMENT, for independent utilities for MDR purposes?

In CGT cases I am more used to its just one of many factors used to weigh up one dwelling vs 2, albeit a persuasive one.

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Replying to ireallyshouldknowthisbut:
paddle steamer
By DJKL
28th Jun 2022 17:46

Seems a tad harsh as a definition.

We built a block of 27 perfectly normal flats in 1997 (converted whisky bond) except each flat only had sub meters for gas and electric and there were main meters for the supply to us re both , we then rebilled the tenants.

Not that SDLT was on point here but they certainly had all the characteristics of flats, council tax, etc, in fact once we split the utilities in circa 2014 they each got sold as a distinct flat.

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Replying to DJKL:
By ireallyshouldknowthisbut
29th Jun 2022 09:09

@DJKL I was thinking of a subdivided Victorian terrace. I have a client with a flat in one on a separate leasehold, separate council tax, and its been shoddily done with a single gas boiler for both flats ie the original heating was left in. it causes no end of arguments about bills, but neither party want the expense of a second supply and boiler. 2 dwellings all right someone else owns the other ones and he has been trying to buy it for years.

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Replying to DJKL:
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By Natashaheron
05th Jul 2022 14:45

It does seem a tad harsh and this point was raised in a case called Wilkinson. It is an interesting read if you would like to know more.

The acceptable criteria for a dwelling is constantly increasing which is why HMRC are aggressively challenging claims.

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Replying to ireallyshouldknowthisbut:
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By Natashaheron
05th Jul 2022 14:43

If you look at case law the First Tier Tribunal cases tend fall down on the lack of independent control over utilities. By this I mean an annex or subsidiary dwelling does not have an internal water stop tap, gas shut off valve (if gas is supplied), separate boiler, fuse box or independent control over its heating.

Fiander is the legally binding case and it also confirms that independent control over the items above are key for a successful claim

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Replying to Natashaheron:
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By Hugo Fair
18th Jul 2022 12:04

Surely "independent control over the items above are key for a successful claim" should read "independent control over the items above increases the chances of a successful claim"?

I know of many situations which no-one (not even HMRC) would dispute are separate dwellings ... where all your listed criteria BAR ONE are met.
The exception being a Boiler which, particularly in old mansion blocks, may still be communal for heating purposes.

FWIW this is likely to dramatically increase over the next decade as Heat Pumps (air or soil based) aren't feasible per residence in many configurations.
So there are likely to be shared air-based ones for houses converted into flats - and communal soil-based ones for blocks of purpose-built flats.

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By Hugo Fair
28th Jun 2022 20:03

Agree with all the above.

I was about to start typing 'old hat' when I saw Justin's comment ... and then decided to point out that some of the assertions seem as dubiously categoric (albeit in the opposite direction) as the claims made by promoters being rightly castigated, but ireally and DJKL beat me to it.

Anyway, it's no good telling an unrepresented taxpayer to seek out "an expert tax adviser in this area" or "a trusted adviser".
They wouldn't know where to find one + don't want to pay those fees + actively prefer to listen to the blandishments of the claim agents (nicer message).
It's a bit like those seeking a 2nd opinion in the medical fraternity - what they are actually looking for is someone to give them the opposite opinion (one they want to hear).

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By AnthonyDavidMain
29th Jun 2022 09:46

I'm quite surprised that HMRC feels it is only one third of MDR claims that are incorrect; those that I have seen my clients receive from such "dubious companies" have in my humble opinion been 100% incorrect... and in one notable case would have left my client with exposure to the higher rate of duty for additional property purchases!

In addition to MDR, I've also seen a couple of clients approached on the basis their new purchases are uninhabitable and therefore shouldn't be charged to the residential rates of duty... let's see how those cases pan out!

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