When buying a property consisting of more than one residence, it may be possible to claim multiple dwellings relief (MDR) against Stamp Duty Land Tax (SDLT). However, there are certain conditions that must be met for an MDR claim to succeed, as a recent case illustrates.

A property was purchased for £1.8 million. Prior to the purchase, the buyer had agreed with the seller that he would be allowed to carry out works to construct a self-contained annex at the property. The buyer's SDLT return included a claim for MDR and indicated that the amount of SDLT due was £40,000. However, HM Revenue and Customs (HMRC) concluded that MDR was not available and the correct amount of SDLT was therefore £114,750. After the buyer's statutory review appeal against that decision was unsuccessful, he appealed to the First-tier Tribunal (FTT).

Under Paragraph 7(2) of Schedule 6B of the 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 if it is in the process of being constructed or adapted for such use. The buyer argued that the annex, as currently configured, had all of the amenities required for independent living and was separate from the main house. HMRC asserted that the annex was not sufficiently independent of the main house, and that the work carried out by the time the sale was completed was insufficient to demonstrate that a single dwelling was in the process of being constructed.

Dismissing the appeal, the FTT concluded that the annex lacked several features needed to consider it a single dwelling. There was no evidence that it had its own postal address or Council Tax billing, or that the internal door between it and the main property was lockable on both sides. The annex did not have separate water or electricity meters. In addition, the buyer had not proven that planning permission for the work had been obtained, or alternatively that it was not needed. The FTT also noted that no tenants had occupied the annex in the two years after the work was completed.

The FTT further ruled that the work done by the date of completion was insufficient to show that the annex was in the process of being adapted for use as a single dwelling.