Fiander and Bower V HMRC also known as The Hemingford House case revolves around the issue of whether a main house and an annex, both forming part of a residential property did not qualify for Multiple Dwellings Relief (MDR) . This article will provide a comprehensive overview and analysis of the case, examining the arguments put forth by the appellants and the legal framework surrounding MDR.
The Appeal
The case originated when HMRC issued a closure notice on August 24, 2018, amending the appellants’ SDLT return. HMRC argued that the acquisition of Hemingford House, Geddington near Petersfield, on April 27, 2016, did not qualify for MDR, resulting in an additional SDLT liability of £10,000.
After a statutory review by HMRC, the decision was upheld, prompting the appellants to take the matter to the tribunal.
Evidence
The tribunal considered various pieces of evidence to make an informed decision. This included a witness statement and oral testimony from one of the appellants, Ms. Brower. Visual evidence, in the form of color pictures of the property, was also submitted.
Additionally, the hearing bundle included information from the “rightmove” website regarding the property’s description and details from HM Land Registry about the property.
Findings of Fact
The key findings of fact in this case include:
- The appellants purchased Hemingford House for £575,000 on April 27, 2016.
- Hemingford House comprised a main house, an annex, a garage, and a summer house. The main house had a living room, kitchen/breakfast room, bathroom, two bedrooms, and two loft rooms.
- The annex included a sitting room, a kitchen/utility room, a bedroom, and a shower room. It had its separate means of entry and exit through glass “French doors.”
- The main house and annex were connected by a corridor, which did not have a lockable door but had door jambs where a door could be installed.
- The property was unoccupied and in need of repairs at the time of purchase.
- The annex did not have its own separate postbox, council tax bill, or utility supply.
- A restrictive covenant from 1958 imposed certain limitations on the property.
Legal Framework
The case hinges on the interpretation of SDLT law, primarily governed by the Finance Act 2003. Under this law, SDLT is applicable to chargeable transactions involving the acquisition of a chargeable interest in land.
The effective date of a land transaction for SDLT purposes is the date of completion.
MDR, as provided in Schedule 6B of the Finance Act 2003, grants relief for transactions involving multiple dwellings. The Schedule defines a dwelling as a building or part of a building that is used or suitable for use as a single dwelling.
If multiple dwellings are involved in a transaction, SDLT is calculated based on the average consideration paid for each dwelling. If this amount is less than 1% of the total consideration, SDLT is charged at 1%.
Arguments Presented by the Appellants
The appellants argued that the definition of “dwelling” should focus on its ordinary, everyday meaning. They contended that a self-contained unit of residential accommodation, providing private domestic living facilities and having its means of entry and exit, should qualify as a “dwelling” for MDR purposes.
The presence of lockable doors and separate utility meters could strengthen the case but were not necessarily required.
In response to HMRC’s arguments, the appellants raised several points:
- The actual use of the annex at the effective date should not affect its suitability as a separate dwelling.
- The absence of a lockable door in the corridor should not impact suitability, as one could be easily installed without structural alterations.
- The lack of separate utility supply, council tax liability, or postal address should not be relevant to the determination of suitability.
- HMRC’s own internal manuals supported the idea that suitability for use as a dwelling should be the focus.
HMRC’s Key Arguments
Annex Not Used as Separate Dwelling
HMRC’s primary contention was that the annex was not being used as a separate dwelling at the effective date of the transaction.
This assertion was supported by various factors, including the absence of physical barriers, a lack of privacy and security, and the absence of separate utility meters, council tax status, and postal addresses.
Absence of Physical Barrier
HMRC pointed out that there was no door or any physical barrier between the annex and the rest of the property, allowing free access between the two areas.
This unrestricted access, according to HMRC, indicated a lack of separation and independence, which is a crucial factor in defining separate dwellings.
Lack of Privacy and Security
HMRC emphasised the importance of privacy and security in determining whether two parts of a property should be considered separate dwellings.
They argued that the absence of a physical barrier resulted in insufficient privacy and security between the annex and the main house.
Property Description and Floor Plan
HMRC presented the property’s description on “rightmove,” which described it as a three-bedroom detached house. They also referenced the floor plan, which indicated a single property.
This evidence suggested that the property was being marketed and viewed as a single dwelling.
Shared Council Tax and Postal Address
The absence of a separate council tax assessment and a unique postal address for the annex further supported HMRC’s argument that it was not a separate dwelling.
Relevance of Hypothetical Scenarios
HMRC contested the appellants’ argument that a door could be easily installed to physically partition the annex, making it a separate dwelling.
They insisted that this was an irrelevant conjecture, and that the tribunal should consider the facts as they were at the effective date, rather than hypothetical scenarios.
Importance of Privacy and Independence
HMRC referred to their manuals, which indicated that a property suitable for use as a single dwelling should exhibit a degree of privacy from other dwellings.
They highlighted that the absence of a door or physical separation between the annex and the main house, resulting in a lack of privacy and security, was a crucial factor.
Only One Dwelling Acquired
HMRC argued that, on a realistic assessment of the facts, only one dwelling had been acquired on the effective date.
They emphasised that the property was arranged as a single dwelling with free access throughout, and evidence suggested that it was occupied as such.
Tribunal’s Discussion and Decision
The tribunal delved into a detailed discussion of whether the annex and the main house could be considered separate dwellings for MDR purposes.
They applied the criterion of “suitability for use” as an objective determination based on the physical attributes of the property at the relevant time.
The tribunal acknowledged that both the annex and the main house had sufficient physical attributes to accommodate basic domestic living needs, such as sleeping, eating, and hygiene.
They also noted that the annex and the main house were physically distinct parts of the property, with separate entrances.
However, the key issue revolved around the short, open corridor connecting the two parts of the property. The tribunal raised two critical questions:
- Whether either part was suitable for use as a dwelling when occupants of one could freely access the other ? and
- Whether either part was suitable for use as a “single” dwelling?
The tribunal emphasised that privacy and security were essential for a building to be used as a dwelling. While lockable doors typically provide such privacy, they noted that a degree of privacy and security could also be achieved through physical separation, combined with a relationship of trust between occupants.
In this case, the tribunal concluded that both the annex and the main house could be suitable for use as separate dwellings only in specific circumstances involving a particular relationship of trust between occupants.
Without such a relationship, neither part could be individually suitable as dwellings due to the insufficiency of privacy and security.
The tribunal also considered the appellants’ argument that a door could be easily installed to create a physical barrier.
However, they held that the suitability test should be based on the property’s physical features at the completion date, not on assumptions of new physical features being added.
Ultimately, the tribunal determined that, according to paragraph 7 of the regulations, the annex and the main house did not individually count as separate dwellings. Instead, they together constituted a single dwelling.
Conclusion
The Hemingford House case serves as a significant legal precedent in the interpretation of the suitability test for MDR. The tribunal’s decision will have implications for similar cases where residential properties have annexes or additional structures.
The case underscores the importance of a practical, rather than a rigid, interpretation of the term “dwelling” under SDLT law.
It emphasises that factors like lockable doors and separate utility meters can bolster the case but are not necessarily decisive and underlines the importance of privacy, security, and physical separation in determining the suitability of separate dwellings.
Ultimately, the focus should be on whether the property is suitable for use as a separate dwelling, even if it requires minor adaptations.
This case highlights the intricate nature of property tax regulations and the need for a thorough analysis of physical attributes and usage patterns to determine the tax treatment of such properties.
The outcome of this case will impact the application of MDR in real estate transactions, providing clarity on the criteria for multiple dwellings relief.
