Multiple Dwellings Relief: What is a single dwelling?

The issue

Multiple Dwellings Relief (MDR) was initially introduced in 2011, with a stated aim to increase rental stock by providing relief from Stamp Duty Land Tax (SDLT) for purchasers of multiple residential properties. MDR allows the SDLT to be calculated based on the average value of the properties, rather than the total value of the transaction. This reduces the overall SDLT so that it is closer to what it would otherwise be, had the dwellings been purchased separately.

Legislation provides that a property is residential for SDLT purposes where it is used or suitable for use as a dwelling. For MDR to apply a purchaser needs to acquire more than one “single dwelling”. However, with no legislative definition of a dwelling, the question of what constitutes a “single dwelling” has become increasingly contentious. There is particular uncertainty on the purchase of a home with “subsidiary” accommodation such as a granny annexe or staff accommodation.

Although some ambiguity remains, there is now enough case law to draw some conclusions on HMRC’s and the courts’ approach and view of what constitutes a “single dwelling”. 

Multifactorial test

The key point emphasised in the case law and guidance is that the question of whether or not there is a “single dwelling” is a question of fact and purchasers should balance all the factors in each case rather than one factor being determinative. Although this is now a well-established approach it is clear that in practice certain factors have carried the most weight with the courts in coming to their conclusions. In particular, the absence of certain physical characteristics has been determinative in many cases.

Physical characteristics

The courts have to date adopted a pragmatic and common-sense approach to the analysis of a property’s physical characteristics, emphasizing the need for the privacy, security and functionality that the average person would consider necessary in their home.

As a starting point, this requires the presence of amenities such as a fully equipped kitchen, bathroom and bedroom. Recent case law in particular has focused on the need for proper kitchen facilities and space to prepare and consume food. Although some ambiguity remains as to the extent of kitchen facilities required, the case law suggests that this needs to be something more substantive than a portable hotplate or a microwave plugged into a socket.  

To be a separate dwelling there must also be the same level of privacy and security that people might expect if the occupants of both dwellings were total strangers as opposed to the more relaxed position that family members living in adjoining homes might expect. The case law highlights that each dwelling should have its own distinct and lockable entrance with a property being accessible without needing to pass through another dwelling. Whilst it is acceptable for there to be common parts (as you would expect in a block of flats) a dwelling cannot be a “single dwelling” if you need to walk through someone else’s living room to access it.  

Control of utilities

Much of the early case law in this area suggested that not much weight should be placed on the lack of separate utilities. More recent case law has suggested that the need for a dwelling to have control over its own utilities (rather than simply the presence of separate invoices) is an important factor. This is a logical extension of the requirement for a dwelling to have a degree of independence and privacy. If it is necessary to walk into someone else’s home in order to turn on your heating, this would suggest that a property does not have the necessary independence and privacy to be a single dwelling.

Legal restrictions

Many of the cases before the courts have more recently included some discussion of the legal constraints that may affect the use of a property. This could include planning restrictions limiting occupation except where that occupation is ancillary to a main house or private restrictions such as agreement between landlord and tenant as to the permitted use of a property.   

In each case these issues have formed part of the court’s judgement but were not ultimately determinative in the face of other factors such as the lack of proper kitchen facilities. Although it is as of yet unclear how much weight should therefore be attributed to any such restrictions, it is clear that they do carry some importance and should form part of the multifactorial analysis of the facts.

Conclusions

The courts have to date adopted a pragmatic and common-sense approach to the question of what constitutes a “single dwelling”. The defining thread in the case law appears to go back to the original intention of the legislation, that only properties that might otherwise be rented out to third parties will in practice qualify for the relief. Whilst the case law in this area continues to develop and questions remain about the weight to be attributed to each characteristic, purchasers should take a common-sense approach when determining whether or not to claim MDR.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024