Explaining subsidiary dwellings guidance for Welsh properties

At the Welsh Revenue Authority (WRA), we’ve been collecting and managing Land Transaction Tax (LTT) since 1 April 2018. LTT replaced Stamp Duty Land Tax in Wales from this date.

Our approach to tax administration is supportive. We want to work with advisers, agents and taxpayers to help them pay the right tax at the right time. This involves carrying out engagement activities, such as tax forums, and offering a tax opinion service for complex tax enquiries.

Updated guidance on subsidiary dwellings

We’ve seen an increase in the number of taxpayers amending their LTT return to make a claim to multiple dwellings relief (MDR). These amendments are being made on the basis that the purchased property comprises of more than one dwelling. Usually, this is a main dwelling and a subsidiary dwelling. It is possible third-party organisations, who weren’t involved in the initial purchase, may be approaching taxpayers to invite them to make these amendments.

We recognise that this is a complex area of tax. We want to help taxpayers claim the relief correctly first time if they are entitled to it. And we want to avoid taxpayers claiming the relief inappropriately, having to pay the tax back later and possibly receiving penalties. We have guidance on what constitutes a subsidiary dwelling, as well as an MDR simple guide for taxpayers.

How the subsidiary dwelling exception works

Ordinarily, where a taxpayer buys more than one dwelling on the same day, the acquisition of both of those dwellings will be subject to the Higher Rates of LTT. There is, however, an exception to this. It’s called the subsidiary dwelling exception.

Where a taxpayer buys more than one dwelling to replace their main residence, or the taxpayer buys more than one dwelling and the person doesn’t already own an interest in another dwelling, the higher rates may not apply to the transaction.

The subsidiary dwelling exception applies where:

• the additional dwelling or dwellings is within the same building or grounds as the main dwelling; and
• the main dwelling is worth at least two thirds of the total consideration paid.

Common examples include a main dwelling and an annexe or a cottage in the grounds of a country house.

Where a taxpayer is buying more than one dwelling in a single transaction, or a series of linked transactions, the taxpayer may also make a claim for MDR.

Case Study 1 (hypothetical): A house with an annexe

Mr Adams buys a property which comprises of a main house and a self-contained annexe. He doesn’t own any other property at the time of the purchase, nor does his spouse or minor child.

The total price he paid was £250,000. The main house was valued at £200,000. This means that the main dwelling is worth at least two thirds of the purchase price.

Furthermore, the annexe is in the same building as the main house. This means that the subsidiary dwelling exception applies and the tax should be calculated at the main rates.

As Mr Adams is buying two dwellings, he can also claim MDR.


What counts as a subsidiary dwelling?

Our guidance defines a subsidiary dwelling based on a series of factors. The factors are indicative and there is no single factor that outweighs the others. As a result, they should all be considered. A dwelling should have:

• A toilet and washing facilities

A dwelling should contain a toilet, sink (other than the kitchen sink) and bath or shower.

• Accommodation for both ‘living’ and sleeping

There should be space for a bed, somewhere to sit and somewhere to eat.

• The facility to store, prepare and cook food, as well as ‘wash up’

A dwelling should contain a kitchen that would normally include an oven and/or hob, hot and cold running water, a space to prepare food (for example a counter-top) and a space to store food.

Further guidance on using the tests

It’s important to apply these tests to both the main dwelling and the subsidiary dwelling. So, each dwelling should have its own kitchen, its own bathroom and its own living space. It will not be enough for these facilities to be shared.

Removing fixtures such as a fitted kitchen or bathroom suite is unlikely to make a property unsuitable for use as a dwelling. In most circumstances, the pipework and circuitry will remain, meaning that the items could easily be re-installed.

Control over the supply of utility services should also be considered

Where each part of the property has independent controls over utilities (for example, electrical consumer unit, stopcock, gas/oil isolation valve, thermostat), this suggests that each part may be a separate dwelling. However, the absence of these facilities does not necessarily indicate a single dwelling.

Access is important too

Access is also an important consideration alongside the wider tests. Our guidance states that each dwelling should have its own independent access. This means that you shouldn’t have to walk through the main dwelling to access the subsidiary dwelling or vice-versa.

There may be interconnecting doors between the main and subsidiary dwelling and where this is the case, at the effective date of the transaction, that door should be lockable.

Planning permission and Council Tax

If planning permission for an annexe or similar had been granted this is also indicative of there being more than one dwelling on the property. In addition, disaggregation for Council Tax purposes is indicative of the property comprising of more than one dwelling. 

Case Study 2 (hypothetical): A country estate

Mr and Mrs Beard buy a property called ‘Tŷ Gwyn’. At the time of purchase Mr and Mrs Beard and their minor children, do not own any other property.

‘Tŷ Gwyn’ comprises of a family home set in large grounds, a gardener’s cottage in those grounds and a small annexe attached to the family home. They paid £1,200,000 for the property.

The main dwelling is valued at £900,000. This is greater than two thirds of the total consideration.

The gardener’s cottage is likely to be viewed as a subsidiary dwelling because:

• it is detached from the main dwelling - this means it has independent access
• it has a kitchen diner, bathroom, sitting room and bedroom
• it has its own stopcock, heating system and electrical consumer unit

The annexe is unlikely to be viewed as a subsidiary dwelling because:

• whilst it has its own bedroom, bathroom and living space, there isn’t a kitchen
• it shares the kitchen of the main dwelling and there is a door leading from the living space of the annexe directly to the kitchen of the main dwelling. This door isn’t lockable
• the annexe doesn’t have its own front door either, meaning to access it you must walk through the living space of the main dwelling

Mr and Mrs Beard therefore need to file a return and pay the main rates of LTT. In their return, they can claim MDR on the basis that they are acquiring two dwellings- the main dwelling, and the gardener’s cottage.

Further support

• Our guidance on the subsidiary dwelling exception is published on our website on GOV.WALES and includes floor plans of houses with annexes to help explain the tests on access. You can also find guidance on multiple dwellings relief on our website.
• We’ve prepared videos to help explain the MDR calculation method in a practical way. Here is a link to the videos. 
• We’ve published a quick guide to multiple dwellings relief which supports taxpayers to decide whether they have a valid claim to MDR.
• Our bilingual helpdesk team is contactable 5 days a week to help with enquiries. You can find details on our Contact Us page on our website.
• If you think that guidance does not apply to your transaction, you can request our opinion on it before you file the return through our tax opinion service.

Guest blog by Joseph Dooher, Senior Policy Adviser, Welsh Revenue Authority