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

The 3% higher rate charge applies to the purchase of a dwelling. What counts as a “dwelling” is set out in paragraph 18, Schedule 4ZA, Finance Act 2003:

“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.”

So, for SDLT, the building concerned must be either used 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 [2019] has emphasised that a bungalow that was not used as a dwelling at the date of purchase, whose radiators and pipework 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 has said 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.

What is Multiple Dwellings Relief?

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. 

Generally, if a granny annex or some other separate self-contained accommodation within the residence or on the land qualifies as a separate dwelling, 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, although not determinative for SDLT.  

Issues that are currently a matter of debate with HMRC, and ultimately possible tax appeals, include: 

  • Is it necessary to have a lockable front door?
  • Is separation by stairs sufficient? 
  • Does it need separate utility metering? 
  • Is council tax registration a prerequisite 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.


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