In 2013 the Defendant acted for the Claimants on their purchase of a property in Dorset (“the Property”) for £365,000. Stamp Duty Land Tax (“SDLT”) of £10,950 was paid on completion. In 2019, the Claimants issued proceedings against the Defendant alleging negligence for failing to advise them that due to the existence of a “self-contained annex” at the Property, they were entitled to claim Multiple Dwellings Relief (“MDR”) on the SDLT payable. They claimed damages of £7,300, representing the amount they would have saved in SDLT, plus interest at 8%.
The basis on which a claim for MDR on SDLT can be made arises from 58D of the Finance Act 2003, which provides that SDLT is potentially available in conveyancing transactions in which multiple dwellings are purchased. Essentially, to qualify for MDR a transaction must involve the purchase of more than one dwelling. Paragraph 7(2) of Schedule 6B outlines the definition of a dwelling, providing that a building, or part of a building, counts as a dwelling if (a) it is used or suitable for use as a single dwelling or (b) it is in the process of being constructed or adapted for such use.
In this case, the Claimants’ case centred on the argument that either an extension to the side of the Property and/or a log cabin in the garden constituted a separate dwelling for MDR purposes.
The claim was defended on multiple grounds and following a trial at Weymouth County Court on 15 July 2020 (which took place remotely, by telephone), Deputy District Judge Jolley dismissed the Claimants’ claim and ordered them to pay the Defendant’s costs.
Whilst the Judge did not accept that an exclusion in the Defendant’s terms of business relating to tax advice exempted the Defendant from advising in relation to SDLT, she nevertheless found that there had been no breach of duty by the Defendant. Essentially, the Judge accepted that there was no evidence to suggest the Defendant should have been aware that there was a separate dwelling. She relied on the extent of the information in the Defendant’s possession, including the sales particulars, which only went as far as saying that the Property “may lend itself for the adaptation of an annexe”. As for the log cabin, this did not even feature on the floorplan, and planning documents in the Defendant’s file made clear that permission had only been granted for ancillary use of the log cabin in association with the Property.
Significantly, and in the context of the number of MDR claims that have been issued against law firms, DDJ Jolley took into account the state of knowledge of the reasonably competent conveyancer in 2013, and the fact that MDR had only been introduced relatively shortly before that date. She also noted that the Law Society Conveyancing Handbook in 2013 contained no reference to MDR, and took guidance from the decision of the First Tier Tribunal in the Fiander & Brower v The Commissioners for HMRC , which provides that suitability for use as a single dwelling is to be judged “from the perspective of a reasonable person observing the attributes of the property at the time of the transaction”, and that use as a single dwelling “excludes, in our view, use as a dwelling joined to another dwelling”.
We anticipate more matters proceeding to trial following this outcome. Given our experience in this matter and other related claims, please do contact Sarah Bowden or Lisa Taylor if you would like to discuss the impact of this decision in more detail, or any wider aspects around MDR claims.