The Stamp Duty Land Tax (SDLT) treatment of properties with self-contained annexes is complicated, but HMRC have recently clarified one point. They confirmed on 23 July 2019 that, where the relevant conditions are met, multiple dwellings relief can be claimed without incurring the higher rates of SDLT (the 3% surcharge).
The confirmation was given in a Talking Points webinar of 23 July 2019 referred to here. It confirms what they had said informally before and in individual cases.
There is more guidance about the issues involved with properties with granny flats and other annexes here.
What was the problem?
The interaction between the higher rates of stamp duty land tax (the 3% surcharge) and multiple dwellings relief (MDR) for a purchase including a subsidiary dwelling (such as a house with a self-contained granny flat) was unclear. Advisers were concerned that the effect of claiming multiple dwellings relief could be that the 3% extra SDLT would apply (even though it would not otherwise have been due). These concerns arose from:
- (a) Para 71 of the Explanatory Note published with the draft Budget Resolutions of March 2016 (commenting on what became s128(4) of the Finance Act 2016) had said: “where a claim to multiple dwellings relief is made, the higher rates apply in calculating that claim”.
- (b) HMRC’s original Guidance Note on the higher rates of SDLT for additional properties of 16.03.2016 had said at para 71 “The higher rates will apply to claims for multiple dwellings relief”.
- (c) Conveyancers who are part of the Conveyancing Quality Scheme have to undertaking training. The CQS Risk and Compliance 2016 Update had a section on the higher rates of SDLT. It mentioned multiple dwellings relief and the example indicated that the higher rates would apply where MDR is claimed.
HMRC had come within a whisker of confirming that a buyer can have the “best of both worlds” in the Manual when the guidance was migrated across Guidance Note of 16.03.2016 and amended. Here is what they say in the Manual at SDLTM09755:
“It will be important in some cases to determine whether a premises consists of one or more than one dwelling.
It is a question of fact whether a purchase consists of one or more than one dwelling. A self-contained part of a building will be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building including independent access and domestic facilities.
In certain cases a purchase of more than one dwelling will be treated the same as if a single dwelling had been purchased. This is the case if any of the dwellings purchased are subsidiary dwellings. A subsidiary dwelling must be within the same building as or in the grounds of another dwelling purchased in the same transaction (the principal dwelling). The principal dwelling and the garden and grounds attributable to that principal dwelling must be at least two thirds of the value of the land purchased in the transaction.
There can be more than one subsidiary dwelling purchased at the same time as a principal dwelling, but the principal dwelling must always be at least two thirds of the transaction value.
Where a principal dwelling is purchased and all the other dwellings purchased are subsidiary dwellings, the tests for whether the transaction is a higher rates transaction are applied as if there was only one dwelling purchased. If the purchase of a principal dwelling is a first property purchase or a replacement of a main residence the higher rates will not apply.
Multiple dwellings relief may be claimed where there are separate dwellings.”
Frustratingly they did not specifically confirm that a claim for multiple dwellings relief in the right kind of case would not itself trigger the higher rates.
What have HMRC now said?
Here is the text of what they said in Talking Points webinar on 23 July 2019:
“In a situation where one of the dwellings being acquired is subsidiary to another of the purchased dwellings (often referred to as an annex) the higher rates may not apply but multiple dwellings relief may still be claimed if the purchase meets the qualifying conditions. A dwelling is a subsidiary dwelling if it is within the ground of or the same building as the main dwelling and the chargeable consideration when apportioned on a just and reasonable basis for the subsidiary dwelling is no more than a third of the chargeable consideration for the whole transaction. To clarify: where an individual buys a property which includes a subsidiary dwelling, multiple dwellings relief could be claimed if the qualifying conditions are met and the higher rates won’t apply unless they are triggered by other property that the individual already owns.”
Buying a property can be a stressful experience; the increase in the SDLT burden and the complexities of the rules add to this, especially as SDLT is a self-assessed tax. It can be difficult to establish whether an annex is sufficiently self-contained so as to count as a second dwelling and then to work out the SDLT consequences. At least one area of potential difficulty has now been clarified by HMRC.
There is an article about the SDLT treatment of properties with granny annexes or other subsidiary dwellings HERE which has recently been updated; that has a link to a much more detailed paper.
For professional advice on SDLT please contact Blake Morgan’s SDLT expert, John Shallcross.