In the case of Winfield v Revenue and Customers Commissioners [2024], HM Revenue & Customs (HMRC) have lost what might be argued was an ambitious challenge to a claim for multiple dwellings relief (MDR), which has saved the taxpayer circa £60,000 in Stamp Duty Land Tax (SDLT).
MDR is a relief from SDLT and although it was abolished for transactions on or after 1 June 2024 it does, in certain circumstances, continue to apply where contracts were entered into before this date. In summary, MDR enables taxpayers acquiring multiple dwellings to calculate their SDLT liability based on the average price of the dwellings acquired instead of the aggregate price and this can lead to large savings.
In this case, the taxpayer bought a rural property which he considered consisted of two dwellings each of which was, as required by the MDR legislation, ‘suitable for use as a single dwelling’. HMRC disputed this and argued that the property was in fact a single dwelling.
The taxpayer said the property contained two dwellings, namely, a main dwelling which included several bedrooms, two bathrooms, toilets, living rooms and a kitchen and a second smaller dwelling, which included a bedroom, bathroom, toilet, living area and a kitchen. The dwellings were connected to one another but contained internal soundproof/fireproof doors separating them which were lockable on both sides. Importantly, each dwelling could be accessed independently of the other.
The dwellings shared an oil boiler which prevented the smaller dwelling from having independent control of its hot water and central heating systems and the property received one combined bill for oil supplied.
Both dwellings had their own electricity meter but like the oil, the property received only one combined electricity bill for overall electricity usage.
Each dwelling had its own stopcock and water supply. The property had one address and one council tax account.
It appears to have been a term of the planning consent which resulted in the creation of the smaller dwelling, that this dwelling could only be used for the ‘domestic and private needs of the occupier and…not…for any business or other purpose whatsoever’. In contravention of this, the previous owner had however let this dwelling to third parties.
It was possible for the occupants of both dwellings to see into the other dwelling which HMRC argued was unacceptable to ‘objective occupiers’ in a rural context.
Taking a multifactorial approach to the case, the First-tier Tribunal (FTT) dealt swiftly with the parties' submissions and appears to have had little trouble in deciding the case for the taxpayer. It concluded that each dwelling had the required physical configuration and independent access to be a dwelling within the meaning of the MDR rules and each had the required degree of privacy, self-sufficiency and security consistent with the concept of a single dwelling. The FTT expressed suspicion of the principle that an occupier of rural property would expect a greater degree of privacy than an occupier of urban property and suggested that any lack of privacy experienced by either dwelling could readily be secured by the use of curtains and blinds. The FTT gave very little weight to the lack of a separate council tax account for each dwelling and the fact that dwellings shared a postal address. It also did not consider that the planning consent shed any light on whether the smaller dwelling was actually suitable for use as a dwelling.
Although MDR has been abolished, this case is not just of historical interest. MDR may still be claimed in certain circumstances and taxpayers acquiring six or more dwellings as part of a single transaction can still avail themselves of the non-residential SDLT rates on such purchases which, being much lower than the residential SDLT rates could lead to substantial SDLT savings. The number of dwellings in a transaction will therefore continue to be of importance in residential property purchases and we expect HMRC to continue to challenge the existence of dwellings where they consider taxpayers are trying to obtain unjustifiable SDLT savings.
If you require any advice in connection with SDLT, please contact our tax specialists.
