The First-tier Tribunal (FTT) has, in the case of Fitzgerald and another v Revenue and Commissioners [2025] UKFTT 89 (TC) upheld HM Revenue & Customs' (HMRC) refusal to agree to the taxpayers' claim for multiple dwellings relief (MDR) largely on the basis of a planning restriction.
If MDR could have been claimed, this would have saved the taxpayers circa £20,000 stamp duty land tax (SDLT).
The taxpayers acquired a property which consisted of a five-bedroom detached main dwelling house with an annexe, garage and carport. The basis for claiming MDR was that the annexe was a separate dwelling to the main house.
MDR used to apply where an interest in a least two dwellings was acquired and it could make a significant difference in reducing taxpayers' SDLT liabilities. It was abolished for transactions with an effective date on or after 1 June 2024 but can, subject to transitional provisions, still apply in certain circumstances.
In this case, the annexe had its own kitchen, living room, bedroom, bathroom and separate front door. It was accessed across the driveway of the main house with entry being gained through a door leading from a car port on the side of the main house into the annexe kitchen. The annexe was connected to the main house through a lockable door. It shared electricity and gas meters with the main house and a single utility bill. The boiler for the annexe and associated gas isolation valve were in an external storeroom and the fuse box for the annexe was in its kitchen. The annexe stretched alongside the garden of the main house with French doors opening from its living room directly into the garden of the main house. The annexe was separately rated for council tax from the main house.
Planning permission for the construction of the annexe was granted subject to a condition that it not be used for any purposes other than as ancillary to the main house and not as a separate unit of residential accommodation in its own right. An expert witness for the taxpayers considered that this restriction could not reasonably be enforced.
The sole question for the FTT was whether the annexe was suitable for use as a dwelling separate from the main house and as expected, the FTT took a multi-factorial approach to this. It noted that the annexe conformed entirely to the physical characterization of a dwelling although it considered its limited privacy made it questionable whether it was suitable for use by anyone other than relatives of the occupants of the main house. In contrast to many MDR cases, the FTT said that the legal restriction on the use of the property was of considerable significance and rejected the taxpayers' argument that it should be ignored as it was arguably unenforceable.
Despite there being considerable evidence that the annexe was suitable for use as a dwelling, the FTT did not consider that any of this outweighed the planning restriction attached to the property. The judge noted that he did not consider it appropriate to disregard the limitations placed on the use of the annexe by the local authority and that - 'The Annexe only came into being on the basis that it would not be used as a separate dwelling and the Tribunal ought to give effect to that position.'
In summary and perhaps surprisingly, the FTT did not consider the annexe to be suitable for use as a dwelling for MDR purposes largely on the basis of the planning restriction. As a result, such restrictions are now likely to attract greater scrutiny and have more importance attached to them by HMRC than before.
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