One dwelling or more?

We all know of properties that are lived in by more than one household sometimes family members, sometimes not and in some cases, the property has not been completely divided into separate units. Why is this important?

If you buy a residential property which is two or more ‘separate dwellings’ you can choose to apply Multiple Dwellings Relief (‘MDR’) to the residential SDLT, which averages out the SDLT across the individual dwellings and can result in a reduction. This clearly applies to apartments, but you can also use MDR where there are one or more ‘subsidiary dwellings’ such as granny annexes or guest suites, without this automatically triggering the additional residential rate of SDLT (3%) on the basis of buying a second residential property (unless you are buying as a limited company).

A dwelling must have the usual ‘domestic offices’ to enable the occupier to carry out the functions of sleeping, personal hygiene, and eating, with a reasonable degree of privacy and security.

In addition, each dwelling must be ‘self-contained’. Entrance lobbies, corridors, and staircases can be common to occupiers as long as each dwelling has a separate lockable entrance. There may be a grey area if you access an annexe by entering through a door to the main house so an appropriate test is to ask yourself if you would be happy with a complete stranger (rather than your granny!) occupying the annexe.

The very recent appeal decision of Doe v HMRC highlighted this point. The property (a detached house) had a self-contained lockable annexe on the first floor and the remaining part of the house included a self-contained lockable unit. However, this main part also contained other rooms, which could be accessed by the occupants of the first-floor unit.

The Upper Tribunal referred to the leading case of Fiander v Bower and noted that the ‘suitability’ test was an objective one based on the circumstances at the date of the transaction. So the historical occupation as two separate dwellings was irrelevant. The occupiers of the ‘main’ house did not have private and secure use of all that dwelling, only of the self-contained unit within it. It was not relevant that the additional rooms were ‘redundant’ to the separate use of the main house.

The appeal failed and the decision of the First-Tier Tribunal was upheld. On the facts of this case the suitability for use test was not met (irrespective of the actual use) and MDR cannot be applied.