Stamp duty land tax (SDLT), annexes, and subsidiary dwellings

The issue

Hopefully you will all be fairly familiar with the advantages of making an SDLT multiple dwelling relief (MDR) claim. This works by calculating SDLT on the average value of dwellings in a transaction rather than on the whole amount.


Consider three identical apartments that are purchased for £1.5m. Here we should accept that the 3% surcharge will apply. With this being the case the SDLT would be less with an MDR claim, as shown below.

Without an MDR claim SDLT would be calculated as follows:

£125,000 @ 3%
£125,000 @ 5%
£675,000 @ 8%
£575,000 @ 15%

This comes to £150,250

With an MDR claim SDLT would be as follows:

Calculate for £500,000 (£1.5m/3)

£125,000 @ 3%
£125,000 @ 5%
£250,000 @ 8%

This comes to £30,000

Multiply by three to get to a total of £90,000, saving £60,250.

This principle also still works for purchases of houses with ‘granny flats’ or annexes. In these cases we should consider whether the annex is a ‘subsidiary dwelling’.

Subsidiary dwelling and the 3% surcharge

If purchasers want to make MDR claims for their property then they will need to be happy that more than one dwelling exists. Prima facie this would make the transaction subject to the 3% SDLT surcharge (because they would own more than one dwelling at midnight on the day of the transaction). This will not be the case if we can argue that any dwellings that are not the main house are ‘subsidiary’ to it. For this to be the case then the following must apply:

• The subsidiary dwelling is within the same building as, or in the grounds of, another dwelling purchased in the same transaction (the principal dwelling); and

• The principal dwelling and the garden and grounds attributable to that principal dwelling are at least two thirds of the value of the land purchased in the transaction.

In our experience most annexes will meet this definition and so the annex itself will not make the MDR calculation subject to the 3% surcharge.

Forbes Dawson view

The ‘subsidiary dwelling relief’ is a valuable way of avoiding the 3% surcharge for transactions which involve granny flats and annexes. It will often be harder to justify that this applies in cases of two or more annexes because it can then be difficult to argue that two-thirds of consideration is attributable to the main house.

When an annex is not a subsidiary dwelling it is not possible to avoid the 3% surcharge just by choosing not to make an MDR claim. We have heard the view expressed that “there is no point making an MDR claim because the MDR saving will be offset by the 3% surcharge”. This is not a valid position to take because the 3% surcharge would still apply irrespective of whether an MDR claim has been made which could sometimes lead to a calamitous SDLT outcome.




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