February 2024 | Tax

This appeal concerned the availability of MDR for SDLT purposes on the purchase of a house and self-contained garage with rooms above. The appeal was principally concerned with the extent of the facilities required for the preparation of food in order for a building to be a dwelling and, alternatively, whether it was in the process of being adapted for use as a dwelling. All statutory references are to the Finance Act 2003.

The appellant purchased a property for £3.3m which completed on 4 December 2020. The appellant filed an SDLT return in respect of the purchase of the property in which he claimed MDR. The appellant self-assessed in the return the amount of SDLT payable to be £193,500. HMRC issued a closure notice under para 23 Schedule 10 on the basis that MDR did not apply, increasing the self-assessment by £101,250 to a total of £294,750. The closure notice was reviewed which gave rise to the appeal.

The property is a very substantial house built by the previous owner sitting in some 40 acres near Ashbourne in Derbyshire. In addition to the main house there is a detached three bay garage with rooms over on the first floor (the annexe). The annexe has central heating, fibre broadband, mains electricity, gas, water and a separate zone on the house alarm system. The utilities do not have separate meters. The annexe is not separately registered for council tax. The kitchen facilities consisted of a microwave, kettle, toaster, fridge, dustbin, server table, kitchen table and a bench. The main room was fitted out with gym equipment, TV and sofa.

Prior to carrying out the alterations described below the annexe did not have the high voltage electricity connections required to fit a cooker, electric oven or hob. The appellant wanted to refurbish the main house immediately after completion and before his pregnant wife arrived in the UK from South Africa, and to live in the annexe while this was being done. It was therefore important to the appellant that the annexe was suitable to be used as accommodation. To that end the appellant planned to carry out some alteration works to the annexe before completion. In the event the alterations had to be carried out after completion because the seller’s wife caught Covid which prevented access.

Prior to exchange the appellant appointed an interior designer who, based on drawings from the appellant and measurements taken by the seller, produced designs for the alterations, which were agreed on 23 November 2020 and kitchen units were ordered along with a significant number of household goods to equip the annexe, including fridge freezer, washing machine and tumble dryer, dustbin, server table, kitchen table, dog beds, a double bed and mattress, two single mattresses, a wall mounted television, wi-fi router, linen, crockery, cutlery and so on. The alterations were completed by 19 December 2020.

On 4 December 2020 the annexe was in the same state as it had been prior to completion save that all of the seller’s chattels had been removed.

The relevant legislation was considered, in particular MDR which reduces the SDLT payable on chargeable transactions if the main subject-matter consists of an interest in at least two dwellings. (Para 2, Sch 6B).

This appeal concerns the applicability of MDR to the appellant’s acquisition of the property. MDR is available if the main subject-matter of the chargeable transaction consists of at least two dwellings. In this appeal it is common ground that the main house is a dwelling. The appeal was therefore concerned with two discrete questions:

  1. Whether the annexe at the effective date was ‘used or suitable for use as a single dwelling’ within paragraph 7(2)(a). HMRC’s principal argument concerns whether the annexe had sufficient facilities for the preparation of food.
  2. Whether the annexe at the effective date was ‘in the process of being…adapted for such use’ within paragraph 7(2)(b). HMRC argued that the works had not started on the effective date, that is completion.

Was the annexe ‘used or suitable for use as a single dwelling’?

When the appellant visited the property before buying, the annexe had been used by the previous owner’s son and the appellant saw a microwave, kettle, toaster, fridge, dustbin, server table, kitchen table and a bench. According to the appellant, the only things missing were an oven, hob and high voltage power connection. The appellant argued that the definition of cooking facilities should move with the times and there were modern alternatives to traditional cookers that required high voltage electrical connections, particularly as people have different approaches to cooking, driven by societal changes such as cost of living, environmental concerns and so on. The appellant also argued that many people eat out or have food delivered and if they do cook it can be without using a cooker. Indeed, the appellant and his family did so during the six months they lived in the annexe. There were therefore sufficient kitchen facilities as at completion to meet a contemporary and objective observer’s requirement for food preparation and eating facilities.

HMRC argued that the word ‘single’ emphasises that the dwelling must comprise a separate, self-contained living unit and that the test is objective. The motives or intentions of particular buyers or occupants of the property are not relevant. HMRC referenced decisions of this Tribunal where the absence of kitchen facilities was significant.

The FTT took as its starting point that the test must be determined from the perspective of a reasonable objective observer and is to be applied as at the effective date. Each case is to be determined on its facts, applying the multi-factorial test of weighing all the facts and circumstances.

In this appeal the effective date is completion on 4 December 2020. The property had been used by the previous owner’s son before completion but the FTT did not find that to be particularly significant, particularly as the occupier had been a close family member occupying in unusual circumstances and on a temporary basis.

The FTT did not find it relevant that the appellant had ordered household goods, kitchen units and appliances prior to completion or that the household goods had been delivered to the annexe prior to completion. Nor did they find it relevant that the appellant had contracted with a kitchen fitter to install the kitchen. The test is the state of the property as at completion and those goods did not change the nature of the annexe until after completion.

In the FTT’s view a reasonable objective observer would consider the following features present at completion to point towards the annexe being suitable for use as a dwelling:

  1. the annexe is a self-contained detached building;
  2. the nature of the first floor, its structural layout and standard of finish is consistent with use as a dwelling;
  3. the annexe has a bathroom, shower and hand basin; and
  4. the connection to utilities and other services: electricity, gas, water, central heating and fibre broadband.

However, the FTT also took the view that a reasonable observer would consider the following features to indicate the annexe was not suitable for use as a dwelling:

  1. the annexe did not have any equipment or identifiable area for the preparation, eating or storage of food, that is no work surfaces, kitchen units, tables or chairs;
  2. there were no high-power electrical connections for installing a cooker, oven or hob;
  3. there was no sink in the main room for washing food, crockery, cooking equipment and so on;
  4. there was no plumbing for installing a washing machine or dishwasher;
  5. it did not have its own separate utility meters, postal address, title number at Land Registry or council tax billing; and
  6. the annexe is not separately registered for council tax.
  7. Overall, given its location on the estate, not being separated from the main house, gardens and other outbuildings at the property and without separate utility meters they found it unlikely the annexe could be sold to a third-party purchaser; the main room in the annexe was essentially empty at completion. Aside from lights in the ceiling, normal power points and central heating radiators there were no other electrical or plumbing connections. Without carrying out works, an occupier could not connect and use a conventional cooker, oven, hob, washing machine or dishwasher. Further without carrying out plumbing works, an occupier could not install a sink for washing food and dishes.

On the first issue, the FTT concluded:

’88. In our view an objective observer would conclude that this lack of minimum infrastructure weighs heavily against the Annexe being suitable for use as a dwelling. The lack of plumbing and electrical connections for dishwashers and washing machines would also point towards an objective observer considering the property was not suitable for use as a dwelling.

89. We find that the lack of a separate utility meter, postal address, title number at the Land Registry or Council Tax billing, whilst of less significance pointed towards the Annexe not being suitable for use as a dwelling.

90. For the above reasons we do not accept that the Annexe as at completion satisfied the test in paragraph 7(2)(a) of being a building that is “suitable for use as a single dwelling”.’

(2) Was the Annexe at the effective date ‘in the process of being…adapted for such use’?

The appellant argued in the alternative that the annexe at the effective date was ‘in the process of being… adapted for [use as a single dwelling]’ within paragraph 7(2)(b).

The FTT held that the appellant had bought the kitchen units and appliances and he had contracted with a kitchen fitter to install the kitchen. However, the alterations had not started and they agreed with HMRC and the Upper Tribunal in Ladson Preston at [38] that ‘in the process of being… adapted’ requires physical works to have started. They accepted that the question would be more difficult had the appellant’s fitter made a nominal start on works but that is not the case in this appeal.

The FTT did not accept that the delays caused by Covid, most importantly the inability to access the annexe between exchange and completion, changes the matter. Covid may be a very good reason for the delay but they have to determine the matter on the facts as they are, not how the appellant intended them to be.


‘103. For the reasons set out above we find that the Annexe is not suitable for use as a single dwelling within the meaning of paragraph 7(2)(a) nor is it in the process of being adapted for such use within paragraph 7(2)(b) Schedule 6B. We therefore find that the purchase of the Property is not within Schedule 6B Finance Act 2003 as the main subject-matter does not consist of an interest in at least two dwellings.

104. Accordingly, we dismiss the Appellant’s appeal.’

See Ralph v HMRC TC/2022/13513.

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