HMRC to triple tax on extended family homes

The recent consultation on reforms to Multiple Dwellings Relief hid a proposal to effectively triple the stamp duty on acquiring for extended family homes. Typically, a £500,000 home without an annexe will cost £15,000 in SDLT but, when an annex is present, the tax falls to £5,000. HMRC have classified this as an ‘unfair advantage’. Multiple Dwellings Relief was introduced to prevent unfairness when purchasers were buying multiple properties and to ensure that they only paid the correct amount of tax on each dwelling if they bought more than one.

David Hannah, Group Chairman of Cornerstone Tax, discusses the impact of the tax rise:

“When the 3% additional homes surcharge was introduced in 2016, it was quickly pointed out that homes with annexes suffered a tax penalty on the annex element because it was a ‘second home’, the government moved quickly to exempt these from the 3% surcharge by introducing a relief from it when the annexe (subordinate dwelling) was worth less than 30% of the main house. At the time they confirmed that it would be eligible for multiple dwellings relief.”

“In 2021 the HMRC received thousands of reclaims/claims from people who have bought these extended family homes – presumably to meet the social objective of caring for dependent relatives at home rather than making them a burden on the state. Suddenly, HMRC decided that this is not fair, bringing HMRC’s definition of unfairness into sharp focus, i.e. that it does not help them get as much tax as possible under the law – even when it is government policy! An earlier example of this was the nil rate band for Corporation Tax introduced by the Labour government at the start of this century, which prompted many people to incorporate their businesses because it was advantageous to do so. Within 18 months the government announced that they were removing the nil rate band because it was being ‘abused’ by people.”

“This is another example of the HMRC’s ‘newspeak’, when we think that the British taxpayer is having too much of a good thing, it is branded as ‘abusive’ or ‘unfair’ or any number of pejorative terms. But the truth is that we were only getting our rights under the law. An individual has to read between the lines, the language of consultation documents and announcements because frequent unfairness means taxpayers are having too much of a good thing… and I for one say long may continue!”

“But what this consultation probably means is that, as far as extended family homes are concerned, Multiple Dwellings Relief on an annexe is almost certainly about to be brought to an end. I think it is conspicuously unfair of HMRC to attempt to penalise sectors of our community that are caring for their relatives or that, traditionally, tend to live in larger extended families as part of their normal way of living. So watch this space – will it change? and if so, when? One thing is clear, with Stamp Duty receipts expected to top £17 Billion in the next 12 months it behoves every single property purchaser to ensure that they maximise the opportunities available to claim MDR and the other 48 reliefs available for SDLT.”