Stamp duty land tax (SDLT) is chargeable on all land transactions in England and Northern Ireland and it can range from 0% up to 17% depending on a whole range of factors. These include the purchase price of your property, whether you are a first-time home buyer or you already own a property and whether the property is residential or non-residential. Since 1 April 2021, there is also a 2% additional surcharge for buyers who are not residents of the United Kingdom.
Multiple Dwelling Relief (MDR) was introduced in 2016 and is available to purchasers of two or more dwellings in a single transaction or a series of linked transactions, and is also available for off-plan purchases. MDR offers significant tax savings for purchasers of multiple properties and/or a single large property which can be divided into multiple dwellings.
Where MDR applies, SDLT is calculated by:
- dividing the total purchase price paid by the number of dwellings;
- working out the SDLT due on this figure; and
- multiplying this amount of tax by the number of dwellings.
If the result is less than 1% of the total amount paid for the dwellings, then the SDLT payable is treated as 1% of the total amount paid. In other words, the rate of SDLT that applies is based on the average purchase price per dwelling instead of being calculated on the total purchase price.
By way of illustration, if you are a UK resident, first-time homebuyer and buy a large detached home with an annex for GBP 1.2 million, you can save almost up to 40% of SDLT by making use of MDR. If the main property and the annex qualify as two separate dwellings, this gives you an average purchase price of GBP 600,000. The amount of SDLT you pay on GBP 600,000 is GBP 20,000 (being 0% on the first GBP 125,000 + 2% on the next GBP 125,000 + 5% on the final GBP 350,000).
This means the total SDLT payable is GBP 40,000 (being GBP 20,000 x number of dwellings).
Without MDR, the SDLT payable would be GBP 63,750 (being 0% on the first GBP 125,000 + 2% on the next GBP 125,000 + 5% on the next GBP 675,000 + 10% on the final GBP 275,000).
In recent years, we have seen MDR claims being challenged by HMRC as more and more property buyers seek to take advantage of it. The latest case of Paul and Jane Wilkinson v The Commissioners for Her Majesty’s Revenue and Customs  UKFTT 0074 (TC) is yet another case where HMRC has come out victorious and another reminder that MDR claims are highly fact-specific and decided on a case-by-case basis. Prudent property buyers should seek advice as early as possible prior to completion on the availability of MDR, especially when the position is not clear-cut. There may be ways to work around and make enhancements to the property to increase the likelihood of a MDR claim being successful.
Wilkinson v HMRC
Wilkinson v HMRC is another example of the property buyers acting too late and the importance of planning ahead. It seemed that the availability of MDR only occurred to the Wilkinsons after the purchase of the property, which is too little, too late. Two days after the Wilkinsons filed their SDLT return for the acquisition of the property, their representatives sent a letter to HMRC to amend the SDLT return by adding a MDR claim.
The Wilkinsons had purchased a large six bedroom property. They tried to argue that one of the bedrooms, utility room and lobby to the utility room (the “Disputed Area”) constituted a single dwelling separate from the main property, entitling them to MDR relief. However, occupants of the main property could access the Disputed Area through doors without locks, which was fatal to their claim. When that argument failed, the Wilkinsons tried to argue that the bedroom alone constituted a single dwelling. In fact, they argued that all meals could be prepared (using a microwave) in the walk-in closet and washing up could be done using a small hand basin in the ensuite shower. The Tribunal Judge T. Bowler was of the view that this was a far stretch.
Although the Wilkinsons ultimately lost, the Judge did make a number of important points, which property buyers should be aware of:
- The relevant time is completion – The Wilkinsons argued that minor modifications (e.g. adding locks to the doors) should be considered irrelevant. However, this was rejected on the grounds that the relevant time was completion. Property buyers should consider requesting such modifications from the seller of the property before completion in order to satisfy the MDR requirements at that time.
- Complying with, and satisfying, fire safety regulations – The Tax Tribunal and HMRC will now look at whether the dwelling is capable of satisfying fire safety regulations. The Wilkinsons were unable to show that that adding locks to the doors would comply with fire safety regulations. This is the second case that mentioned the importance of fire safety regulations. In another recent case Mullane v HMRC  UKFTT 119 (TC), the Tribunal Judge Gething was of the view that the kitchen facilities in the annex were unsafe, which was fatal to the Mullanes’ MDR claim.
- Location matters – The Judge considered the location of the property. The Judge contrasted a property in the Scottish Highlands versus being in the heart of the city in London. Kitchen facilities may not be important for a person living in the city centre with easy access to eating out, take-away meals and food deliveries.
- The dwelling must have unity or coherence as one identifiable property – This means the property has to make sense. In the Wilkinsons’ case, the occupier would have to walk outside to go between the bedroom and the utility room.
- There must be separateness between the dwellings – The Judge opined that a single dwelling is not restricted to standalone buildings but could include two dwellings that are physically joined, e.g. by a dividing wall, as long as there is a separateness between the dwellings. In the Wilkinsons’ case, the Judge found that there was no separateness between the main property and the Disputed Area, whether by lockable doors or any other features.
- Control over utilities – The Judge found that it was necessary for the occupants of each dwelling to be able to control the heating and hot water settings. In this specific instance, the occupiers of the main property would have no control over the heating and hot water, which were in the utility room.
Wilkinson v HMRC is another example of property buyers who were too late in putting in place a sensible plan. It was the small things which were fatal to the Wilkinsons’ claim. Property buyers should be aware of and seek advice on the availability of MDR relief well ahead of completion.
For further information on MDR and how we can help, please contact our Private Client and Tax Team.