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If you are buying a home with a separate annex you may be able to claim Multiple Dwellings Relief (MDR) and significantly reduce the amount of SDLT payable. MDR applies where you are purchasing 2 or more dwellings.

For example:-

You purchase a second home for £1 million. The property has a separate annex which you have established is valued at £150,000 on its own.

The SDLT on £1 million comes to £71,250.

Using MDR, separately the average value for the house and annex is £500,000. The SDLT on £500,000 is £27,500, multiplied by 2 comes to £55,000.

By claiming MDR you end up saving £16,250.

But is it a Separate Dwelling?

For the annexe to be considered a separate dwelling it must be sufficiently self-contained to be considered a ‘single dwelling.’The test of whether a property is “suitable for use” as a single dwelling is a more stringent test than whether it forms a self-contained part of a larger dwelling. Furthermore, whether or not it is suitable for use as a single dwelling requires consideration of whether it is sufficiently independent to be considered a dwelling on its own.

In the case where a building is considered to contain more than one dwelling, evidence will be needed to show that each ‘dwelling’ in question is sufficiently independent to count as a separate dwelling in its own right. In the absence of sufficient evidence, it may be decided that it is more appropriate to consider that there is one dwelling, not two or more.

Forming a Balanced Judgement

In considering whether or not a property includes one or more dwellings a wide range of factors come into consideration. No single factor is likely to be determinative by itself. However, not all factors are of equal weight either, and one strong factor can outweigh several weaker contrary indicators. Where a number of contrasting indicators exist, it may be necessary to weigh up the factors to come to a balanced judgment.

Questions to help establish whether a claim can be made 

We have submitted several claims to help clients claim MDR and as part of the application we carry out a detailed assessment of the factors that will determine eligibility. Some of these are: 

Facilities

1. Sleeping Area – Does the annex have an area available for sleeping? 
2. Living Area – Does the annex have a living area? 
3. Bathroom – Does the annex have its own bathroom? 
4. Kitchen – Does the annex have its own kitchen? 

Independent Entrances 

It is important that each dwelling has sufficiently independent access. This could be a separate entrance from the outside of the building. Can access to the annex be gained separately from the main residence and via its own lockable door? 

Does the annex have privacy from the occupiers of the main house? 

Privacy and interconnecting doors

A single dwelling requires a degree of privacy from other dwellings. It is unusual, but possible, for adjoining dwellings to have interconnecting doors. It is relevant whether the door between the parts can be locked, or is readily capable of being made secure from both sides.

Are there any interconnecting doors between the main house and the annex?  

Control of Utilities

A single dwelling should be able to control all or most of the utility services supplied to it such as:-

1. Electricity  
2. Cold Water 
3. Heating  
4. Gas 

Where a property has a physical configuration that suggests it might be considered two dwellings (“main property” and “annex”) but very few or no utilities can be controlled by the annex-dwellers without needing to enter another dwelling to do so, it is likely that the “annex” should not be considered a single dwelling in its own right.

Other Factors

There are several other factors such as Legal Constraints, Council Tax, and separate posts and bills. All of these will need to be taken into account when determining whether the Annex can be regarded as a separate dwelling.

Time Limit

A claim must be made within 12 months after the filing of the original SDLT return. If you think you qualify, we advise that you get in touch straight away.

If you have any further queries on this subject please reach out to us at 01902 711370 or email enquiries@uklandlordtax.co.uk if you have any questions or require our expert assistance.

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG