The meaning of “dwelling” is very important for SDLT purposes. Two areas where it can lead to significant savings in SDLT are in relation to the 3% higher rates of SDLT and in relation to multiple dwellings relief.
3% Higher Rates
“(2) A building or part of a building counts as a dwelling if –
- it is used or suitable for use as a single dwelling, or
- it is in the process of being constructed or adapted for such use.”
This definition is not particularly helpful in explaining the meaning of “dwelling”, although it is clear that for SDLT that the building concerned must be either used or suitable for use as a single dwelling or is in the process of construction or adaption for such use at the effective date.
A recent tax Tribunal case Bewley Ltd v HMRC  has emphasised that a bungalow that was not used as a dwelling at the date of purchase, whose radiators and pipe work had been removed and with the presence of asbestos preventing any repairs and alterations, was not suitable for use as a dwelling. Accordingly, the Tribunal held that not only did the 3% higher rates not apply to the purchase price of £200,000, but that SDLT was chargeable under Table B for non-residential property at £1,000 and not the £1,500 paid by the appellant taxpayer under Table A.
While much excitement has been aroused by this case, it is important to understand the limitations of the decision. For example, a dilapidated house that is still being used as a single dwelling at the time of sale or one that instead of being demolished as in Bewley, is in the process of construction or adaption, e.g. repair as a single dwelling, will still be a dwelling for the purposes of the 3% higher rates. HMRC have said at SDLTM09520 that residential properties in the process of construction will be treated as dwellings at the point at which the walls begin to be built upon the foundations even if those walls are not yet above ground level.
There is also the chestnut of the purchaser who pays the vendor to demolish the old dwelling before completion, and so at completion, acquires the land in order to build another dwelling and how that is to be treated for SDLT. Could the GAAR apply?
Multiple-dwellings relief allows the SDLT on the purchase of two or more dwellings to be computed by reference to the average value of the properties purchased, multiplied by the number of dwellings instead of by reference to the total purchase price of all the dwellings.
This can lead to a significant reduction in the amount of SDLT charged on the purchase of two or more dwellings, either together, or in linked transactions.
The definition of “dwelling” for this purpose is the same as for the 3% higher rates above, but it is contained in paragraph 7, Schedule 6B, Finance Act 2003.
Much energy and time has been spent on exploring the definition of single dwelling for the purposes of this relief, particularly in the case of the purchase of a single property for use as a residence, but where there is a granny annex or some other separate self-contained accommodation within the residence or present on the land. If the annex qualifies as a separate dwelling, then the relief can be claimed.
The ordinary natural meaning of dwelling suggests that the accommodation concerned needs to contain facilities for personal hygiene, consumption of food and drink, the storage of personal belongings and a place to rest and sleep. Use as a single dwelling also suggests a degree of separation and privacy.
The way that dwelling has been defined for VAT and council tax purposes is instructive here, although not determinative for SDLT. Issues that are currently a matter of debate with HMRC and ultimately possible tax appeals, include whether it is necessary to have a lockable front door, whether separation by stairs is sufficient and whether separate utility metering and council tax registration is a pre-requisite to be a single dwelling.
If you are considering whether the 3% higher rates of SDLT apply or whether you can claim multiple-dwellings relief, contact Patrick Cannon for an initial discussion.
 (2)A building is designed as a dwelling or a number of dwellings where in relation to each dwelling the following conditions are satisfied—
- (a)the dwelling consists of self-contained living accommodation;
- (b)there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
- (c)the separate use, or disposal of the dwelling is not prohibited by the term of any covenant, statutory planning consent or similar provision; and
- (d)statutory planning consent has been granted in respect of that dwelling and its construction or conversion has been carried out in accordance with that consent.