Mark McLaughlin looks at stamp duty land tax multiple dwellings relief, and houses with 'granny flats.'
Buying a home (in England and Northern Ireland) can be expensive for stamp duty land tax (SDLT) purposes. The top rate of SDLT for residential properties is 12% (NB the rates are increased by 3% for purchases of additional residential properties and by 2% for purchases by non-UK residents).
Multiple dwellings relief
However, the SDLT liability will often be lower if 'multiple dwellings relief' (MDR) is available. MDR broadly involves calculating the SDLT that would be chargeable if the total purchase price for the residence was divided by the number of dwellings, then multiplying that SDLT by the number of dwellings (subject to a minimum SDLT rate of 1%).
The MDR calculation depends on the number of single dwellings within the transaction. Many larger houses have subsidiary dwellings (or annexes). If an annexe constitutes a single dwelling, MDR may be available in respect of the main and subsidiary dwellings, possibly resulting in a lower SDLT liability. However, it may prove difficult to convince HM Revenue and Customs (HMRC) that MDR is due.
For example, in Partridge v Revenue and Customs [2021] UKFTT 6 (TC) in April 2017, the taxpayers purchased a detached house in Hampshire for £915,000. It had six bedrooms and an annexe. The annexe had a separate entrance door, kitchen area and garden. The internal doors to the annexe could be shut off from the main house. However, the bathroom for the annexe was accessed through the main hallway of the house. The taxpayers contended that, after minor alterations, the main house and annexe could have been made suitable for use as separate dwellings. However, the First-tier Tribunal (FTT) held that the test was suitability for use, not adaptation for use, and concluded that the main house and annexe constituted a single dwelling. MDR was denied.
In Doe v Revenue and Customs [2021] UKFTT 17 (TC), the taxpayers purchased a detached property in London in August 2017 for £2,700,000. The property had an annexe. The ground floor had two reception rooms with the entrance hall leading through to a dining room and then to the kitchen, from which the ground floor bathroom could be accessed. On the first floor, there were two bedrooms with a separate annexe on the half landing housing another bedroom, bathroom and kitchen. An occupant of the annexe entering the property through the front door would have access to the reception room, study, and dining room (leading to the kitchen and bathroom on the ground floor) unless the doors to the reception room, study and dining room were locked. The FTT concluded that the main house and annexe were suitable for use as one single dwelling, not two dwellings. The taxpayers' MDR claim failed.
HMRC subsequently published guidance on factors to establish whether a house and annexe should be regarded as one or two dwellings (see HMRC's Stamp Duty Land Tax manual at SDLTM00410 and following).
Practical tip
Higher rates of SDLT (the '3% surcharge') generally apply to purchases of additional dwellings (e.g. second homes). However, if an annexe is a 'subsidiary' dwelling (within FA 2003, Sch 4ZA, para 5(5)), it does not count as an additional dwelling for the purpose of the 3% surcharge. Furthermore, HMRC guidance on subsidiary dwellings (at SDLTM09755) states: ‘[MDR] may still be claimed where there are separate dwellings even when one or more of these comprise subsidiary dwellings. ‘
