MDR is a relief available where under a single or linked purchase a buyer acquires an interest in at least two dwellings.
The way that Stamp Duty Land Tax (SDLT) is calculated can result in significant tax savings when compared with a calculation on the full price of the dwellings together.
Many law firms have experienced claims by past clients who have been “encouraged” to claim a refund of part of their SDLT, paid on a past purchase, on the basis of the property being eligible for relief as a multiple dwelling purchase and benefit from Multiple Dwelling Relief (MDR).
Unfortunately we have seen the rise of “claims firms” trawling the internet for evidence of any completed purchase where there could be any suggestion of MDR having been “missed” by the buyer’s conveyancer and then creating a claim not only for the relief, but also against the conveyancer firm in question, for its “failure” to advise the buyer correctly. One of these firms – in business for less than 2 years - has marketed its track-record of 100% success rate. What the public do not understand is that every claim for reimbursement, based on MDR is likely to be processed by HMRC in the first instance without challenge, but HMRC have the ability to retrospectively investigate and challenge and have in fact been given a new power to investigate MDR claims in the recent Budget. This has seen some high-profile “wins” by HMRC, who seem keen to make an example to stamp out what amount to spurious claims.
In a case, decided in February 2021 a line was drawn as to what the courts would accept as a separate dwelling for the purpose of MDR and the judge was recorded as saying that suggesting that a walk-in wardrobe with nothing more than a plug was stretching the suitability of the annexe as a single dwelling, “if not beyond, to its reasonable limits”
There have been many such cases, recently and these have centred on deciding whether the annex or “second dwelling” has the ability, services etc. to be classed as a separate dwelling in its own right. It should “accommodate all of a person’s basic domestic living needs: to sleep, to eat, to attend to one’s personal hygiene, with a reasonable degree of privacy and security.” They also agreed with HMRC that the dwelling has to be “self-sufficient” and “stand- alone” going so far as to say that use as a dwelling joined to and being used freely by the occupiers of another dwelling would exclude it from MDR.
There were plenty of specific requirements set down in the cases before and including this recent one, but in short, if no reasonable person would say that a second dwelling exists, then do not believe the claims company who try to convince you that there’s money to be made.
Rest assured that, by the time HMRC get ‘round to investigating, it’s likely that the “specialist” tax advisor will no longer be trading and leave you with a hefty tax bill, penalties and interest.