One House or Two? The Annexe That Secured MDR

In Michelle Jacqueline Berrell & Anor v HMRC [2025] UKFTT 1067 (TC), the First-tier Tribunal considered whether a property comprising a main house and an attached annexe qualified for Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax purposes. The Tribunal allowed the taxpayers’ appeal, concluding that the annexe constituted a separate “dwelling” within the meaning of Schedule 6B to the Finance Act 2003 and that MDR therefore applied to the transaction.

The taxpayers purchased the property in December 2021 for £492,000 and initially submitted their SDLT return without claiming MDR. They later amended the return to reclaim SDLT on the basis that the property comprised two dwellings. The property consisted of a detached three-bedroom house and a single-storey annexe converted from a former garage. The annexe included a studio living and sleeping area, a toilet and shower room, and a utility room with a sink and a high-voltage cooker connection. Access to the annexe was via a lockable door from a shared front porch, and it benefited from independent electric heating, a separate fuse box and a separate stop tap, although it relied on the main house boiler for hot water and did not have separate utility meters, council tax registration or Land Registry title.

HMRC rejected the MDR claim, arguing that the annexe lacked sufficient independence to be regarded as a separate dwelling. Particular emphasis was placed on the shared access arrangements, the lack of separate meters and titles, the shared hot water supply and the configuration of a narrow rear hallway giving rise to concerns about privacy and security, especially in relation to garden access. HMRC also relied on the fact that the property had been marketed as a single dwelling.

The Tribunal approached the case by applying the established multi-factorial test for determining whether a unit is “used or suitable for use as a single dwelling” at the effective date of the transaction. Consistent with earlier authority, the Tribunal focused primarily on the physical attributes of the property and whether the annexe afforded the facilities necessary to meet basic domestic needs, namely sleeping, hygiene and cooking, together with an adequate degree of privacy, security and practical self-sufficiency.

In weighing the evidence, the Tribunal identified a number of strong indicators in favour of the annexe being suitable for separate occupation. These included the presence of dedicated living and sleeping space, its own bathroom facilities, the ability to cook without physical alteration to the building, a lockable entrance, and a meaningful degree of separation in terms of services, such as independent heating and electrical infrastructure. While acknowledging the absence of separate meters and formal separateness in legal and administrative terms, the Tribunal regarded these points as relevant but not determinative.

The most challenging aspect of the case concerned the rear hallway and garden access, which raised legitimate concerns about privacy and security. HMRC argued that the Tribunal should not speculate about hypothetical arrangements for occupation and should confine itself strictly to the physical layout as it existed at completion. The Tribunal rejected that rigid approach, holding that it was permissible, as part of the overall assessment, to consider whether realistic legal terms of occupation could be envisaged that would address such issues. The Tribunal concluded that workable arrangements could reasonably be contemplated, for example by treating certain areas as communal or by restricting garden access, and that these practical imperfections did not prevent the annexe from being suitable for use as a single dwelling.

Taking all factors into account, the Tribunal concluded that the property comprised at least two dwellings for the purposes of Schedule 6B and that MDR applied. The appeal was therefore allowed. The decision reinforces the fact-sensitive nature of the “dwelling” test and confirms that shared access or utilities do not automatically preclude separate dwelling status.

Although MDR has since been abolished for most transactions completing on or after 1 June 2024, subject to limited transitional rules, the decision remains important for historic claims, ongoing enquiries and transactions protected by those transitional provisions. More broadly, it provides helpful guidance on how tribunals assess annexes and sub-units, emphasising substance over form and rejecting a simplistic requirement that a unit must be fully self-contained in every respect to qualify as a separate dwelling.