UHY Ross Brooke Chartered Accountants

When is a dwelling not a dwelling?

Stamp duty land tax relief

When it’s more than one.

But what constitutes multiple dwellings for HMRC?

A transaction which is liable to Stamp Duty Land Tax (SDLT) may qualify for substantial relief, and property buyers can be tempted by the prospect of a tax refund. Many unscrupulous organisations are offering their services, offering to make a claim for these buyers.

Perhaps the easiest relief to understand is the Multiple Dwellings Relief (MDR) where a purchase includes more than one dwelling. Examples of this include granny annexes, converted barns, converted garages and converted outbuildings.

Since MDR is calculated by dividing the total purchase price by the number of dwellings, and then applying the often lower Stamp Duty rate to this average property price, the total savings can be very appealing, especially where large sums are involved.

There are other reliefs available  from SDLT including:

  • Linked transactions
  • Purchases including residential and non-residential land and property

Examples of spurious SDLT relief claims

In recent years, HMRC has acted against purchasers for spurious claims including:

  • A claim that a house was not a wholly residential property since a detached garage had an office above it. The office was, obviously, a bedroom.
  • Because a bedroom had an en-suite and a wardrobe which the buyers argued could function as a kitchen if a kettle and a microwave were installed, a claim was made that it was a separate dwelling!
  • A property included a paddock, where a neighbour’s horse would occasionally stay. The owners claimed that the property was a mix of residential and non-residential, which attracted a lower rate of stamp duty.

While some of these claims are almost comical, it’s worth understanding why they would not be allowed. Phil Kinzett-Evans (Tax Partner) explains:

  • “A tax adviser would know that horse paddocks, unless there is a commercial business being carried on, are usually classified as being for the benefit of the owners of the residential property as an equestrian pastime, not non-residential property. They are part of the garden and grounds of the home.
  • On qualitative matters, there was a recent case also A Dower and another v HMRC [2022] wherein HMRC has stated that Airbnb letting is not evidence on its own that a property is suitable for use as a dwelling place. But rather the comparator for Airbnb accommodation would more likely be hotel accommodation as it is short term occupation rather than use as a dwelling. But it still all does depend on facts.”

What defines a separate dwelling in HMRC’s eyes?

A dwelling must include somewhere to:

  • cook and prepare food
  • sleep
  • live
  • wash and attend to personal hygiene

and should:

  • have a secure private entrance . Any internal doors should be lockable on both sides
  • have a degree of control over its own utilities – heating, hot water, gas supply, cold water, fuse box and boiler, including shut-off valves and stopcocks.

Once you understand this, it’s obvious that spare bedrooms are unlikely to qualify for MDR.

Who understands the SDLT rules?

Buyers may convince themselves that the rules are flexible or that their own case is special, and since the savings are significant, it can be tempting to fall for a cold call from an ‘expert’ agency. Many of these agencies offer a no-win no-fee claim, but if the buyer’s claim is subsequently found to be unacceptable, the buyer could face repaying the relief plus accrued interest to HMRC, and could also face a penalty.

Who are these ‘rogue’ SDLT agents?

Well, they’re not experts in SDLT for a start! Along with other scammers, they will search property sales websites including Land Registry and contact people who have recently purchased property, with the prospect of a tax refund. Rulings in recent tax cases have reduced the number of claims which will pass the test anyway, so even if a claimant could have been successful previously, they are less likely to now.

If you or your legal advisor are contacted out of the blue by someone claiming to be able to reduce your SDLT, do double check it with a reputable organisation like us. Yes, the tax relief can be significant, but it’s better to be on the safe side and not risk a subsequent and very often expensive enquiry from HMRC.

SDLT timeline

  • Property purchase is completed (“the effective date”)
  • Up to 14 days later: Purchaser/agent eg solicitor must file SDLT return and make payment
  • Up to 9 months after the filing date, or the date of subsequent amendment: HMRC can make an enquiry into the claim.
  • Overpayment relief can be claimed where SDLT has been paid incorrectly, for example, if the surcharge rate of SDLT was paid and this was not due then a claim can be made within 4 years of the effective date. This does not apply where a claim for relief was not made in a return, but applies where the SDLT was computed incorrectly on some other basis.

Who can help reduce your SDLT?

We may be able to. We have a team of specialists who deal with Stamp Duty Land Tax claims regularly and who understand the rules. That means that we won’t put forward a tax reclaim unless we are confident that you will receive it, and we will be realistic and honest with you about what you should be able to reclaim. We may even be able to claim more for you than you were expecting, simply because we know how SDLT works. In the same way that your estate agent was better at selling your home than we would be, or your solicitor at conveyancing, we understand tax.

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