David Green, the co-founder of The Strategic Partner and preferred risk management consultant of Paragon, spends a significant amount of time assisting law firms with their strategic development.  He has shared his thoughts on Multiple Dwelling Relief and the practical measures firms might take to mitigate risk.

Introduction

Multiple Dwelling Relief (MDR) claims against law firms continue to cause concern.  Conveyancers are well-advised to ensure they take extra care when the issue of MDR arises in a matter where they are assisting a client in purchasing properties.

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 transaction is deemed to have more than one dwelling, tax is calculated by sharing the Stamp Duty in equal shares regardless of the price allocated to each residence.  The result should be 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.  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”.

Solutions

So how can a law firm protect itself and ensure that it does not miss the potential for its client to achieve a reduction in the Stamp Duty payable due to MDR and, through doing so, remove the risk of negligence allegations?

Agent Particulars – Ensure that you always obtain the estate agent’s particulars as part of your standard conveyancing process.  Doing so 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: -

“- 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 or is similar, you must inform us immediately and prior to the submission of the Stamp Duty return as you might 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 the full Stamp Duty and any discount that could have applied.”

Independent advice – Make it clear that if the client believes they might 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 Stamp Duty Land Tax filing based on a standard calculation.

Review the title register and plans – Make sure that you have reviewed the property plans as part of your gathering of information and reporting to the client.  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 know how the calculation will differ when MDR does apply.

With Claims Farmers continuing to focus on this area of potential negligence, it is essential to ensure that all firms take the necessary precautions to make certain there is sufficient knowledge of MDR and that appropriate actions are taken when this is a feature of any transaction.

You can find more information on MDR by visiting the HMRC website.

- https://www.gov.uk/guidance/stamp-duty-land-tax-relief-for-land-or-property-transactions#sdlt-relief-for-multiple-dwellings.

If you have any further questions concerning the issues raised in this article, Paragon, The Strategic Partner or the firm’s approach to risk management generally, please get in touch using the details below.

CONTACT US

For more information on the changing market, your firms’ PII renewal or to organise a meeting, please contact:

Ryan Senior

E rsenior@paragonbrokers.com

T +44 (0)20 7280 8254

M +44 (0)7827 575 652

Piers Winton

E pwinton@paragonbrokers.com

T +44 (0)20 7280 8224

M +44 (0)7787 375378

This article is published without responsibility on the part of the author or publishers for any loss occasioned by any person acting or refraining from action as a result of any views expressed in the article. Specific risk management advice requires detailed knowledge and analysis of each firm and practice area facts relating to the risk. The information included in this article cannot and does not attempt to satisfy this requirement for any of its readers