Multiple Dwelling Relief (MDR) claims against Law Firms continue to cause concern. Conveyancers are well advised to ensure that extra care is taken when the issue of MDR arises in a matter where they are assisting a client in the purchase of a property.
MDR permits the purchaser of two or more dwellings in the same transaction to receive a reduction in the Stamp duty payable as the calculation method is different. When a property is deemed to have more than one dwelling, the stamp duty is calculated by sharing the stamp duty in equal shares of the price allocated to each residence. The impact of this results in a reduction of the overall stamp duty payable.
The case of Fiander and Brower v HMRC which was recently upheld on appeal, gives some comfort to law firms where the Upper Tribunal found that the property in question failed the test of being separate as it was connected to the main property by a corridor and no door. The Upper Tribunal found that “The property did not have the required privacy and security to be considered a separate dwelling”.
So how can a law firm protect itself and ensure that they do not miss the potential for their client to gain a reduction in the stamp duty payable due to MDR and, through doing so, remove the risk of negligence being alleged?
- Agent Particulars– Make sure that you always obtain the estate agents particulars as part of your standard conveyancing process. This should (will) identify any separate dwellings or at least obvious ones
- Client Care letter– Ask the Client! – ensure your client care letter deals with some fundamentals and raises direct points with the client.
- Disclaimer– Ask the client the direct question and push the burden of disclosure to them. In the client care letter (or in a property attachment), ask the question: –
- “- Multiple Dwelling Relief (MDR) – Does the property you are purchasing have a place where a person (or a group of persons) can live separately and independently? To consider whether part of the property is a separate dwelling, this is defined as a building or part of a building that can accommodate all of a person’s basic domestic living needs: to sleep, to eat, to attend to one’s personal and hygiene needs, and to do so with a reasonable degree of privacy and security. For a claim for MDR to succeed, the separate dwelling must have all of these features, and the transaction must be linked (i.e. the whole property being purchased at one). If you believe there is a separate part of the property this fits this description of, similar, you must inform us immediately and prior to the submission of the Stamp Duty return as you may be entitled to benefit from Multiple Dwelling Relief. Should you fail to inform us of an actual or potential separate dwelling, the firm cannot be held responsible if you pay full Stamp Duty, and the discount could have applied.
- Independent advice– Make it clear that if the client believes they may be entitled to a reduction in stamp duty, for any reason, they should seek independent legal advice from a tax expert who will be able to advise them. Failing which the firm will process the SDLT filing based on a standard calculation.
- Review the title register and plans– Make sure as part of your gathering of information and reporting to the client that you have reviewed the plans of the property, and again any indication of a separate dwelling must be raised with the client.
- Training – make sure your staff are aware of MDR and when it will apply. Also ensure they are aware of how the calculation will differ when MDR does apply.
With Claims Farmers continuing to focus on this area of potential negligence, it is important to ensure that all firms take the necessary precautions to ensure that there is sufficient knowledge of MDR and the appropriate actions are taken when this is a feature.
You can find more information on MDR by visiting the HMRC website.
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