The Welsh Revenue Authority began collecting the Land Transactions Tax (LTT), which replaced the Stamp Duty Land Tax (SDLT) in Wales on April 1, 2018.
We work with agents, taxpayers and organizations like the Law Society to navigate the differences between LTT and SDLT to help people pay the right tax at the right time.
Using and learning from our data, we have noticed that some LTT returns are amended on the basis that a property contains subsidiary accommodation – such as an annex – so that Multiple Accommodation Relief (MDR) can be claimed.
In some cases, there is a case to claim relief. However, this is not always the case. It is possible that certain changes were made following the advice of a third party, separate from the agent who participated in the initial transaction.
We want to help taxpayers claim relief correctly the first time if they are entitled to it. And we want to prevent taxpayers from inappropriately claiming relief, then having to pay back the tax later and potentially receive penalties.
For those who want to help taxpayers pay the right tax the first time, we have detailed advice on our website to clarify our view of what âsubsidiary housingâ is.
Annex housing and increased rates
The rules for higher rates are set out in Annex 5 of the Land Transactions Tax and Combating Decentralized Taxes (Wales) Act 2017 (LTTA). Usually, when a person purchases multi-unit housing, the higher LTT rates apply (currently 4% higher than the rates for major residential buildings). But subsidiary dwellings do not count as qualifying dwellings for the higher rates.
Accommodation will be subsidiary accommodation if:
- It is located in the same building or on the same land as the main house.
- The amount of consideration granted for the main dwelling (according to a fair and reasonable distribution) is greater than two-thirds of the total consideration for the land.
Lightening of collective housing
MDR can be applied when a person purchases two or more homes in a single transaction, or when there are multiple linked transactions. If the MDR is claimed, the tax payable is calculated differently, with the total housing consideration in the transaction divided by the number of housing units. It is therefore important to clearly identify the number of dwellings concerned in order to obtain the tax right. The relief is set out in Schedule 13 of the LTTA.
The MDR and the subsidiary accommodation exception may apply to a single transaction. In these circumstances, major residential property rates may apply.
Guidance on annex housing
Before you can decide whether you have subsidiary accommodation, you need to decide on the total number of accommodation. For higher rates, a building or part of a building counts as a dwelling if it is used or fit to be used as a dwelling, or if it is being constructed or adapted for such use.
This is a complicated area, so we’ve posted some tips on what counts as secondary accommodation and what is part of the main house. It clarifies existing views and sets out the indicative factors that we will consider. These are:
- A toilet and washing facilities
Each accommodation must contain a toilet, a sink (other than a kitchen sink) and a tub / shower.
- Accommodation to “live” and sleep
In each dwelling there should be room for a bed, a place to sit and a place to eat.
- The installation for storing, preparing and cooking food, as well as for “washing”
Each dwelling should contain a kitchen which would normally include an oven and / or hob, hot and cold running water, space for preparing and space for storing food.
- Independent access to the two apartments
If the annex accommodation is in the same building as the main accommodation, a door leading directly to the outside is not necessarily required; the property can be entered through a common hallway / landing. If, however, the access is through the living area of ââthe main dwelling, it is unlikely that it will be classified as a subsidiary dwelling.
- If it is possible to access the annex accommodation from the main accommodation (and vice versa), there must be a lockable door
- The occupier must be able to control the provision of public services
When the two parts of the property have independent controls over the utilities (including the electrical consumption unit, the shut-off valve, the gas / oil isolation valve, the thermostat), it suggests that each part can be a separate dwelling in its own right. However, the absence of these amenities does not necessarily indicate a single accommodation.
Case study: Mr and Mrs Beard
Mr and Mrs Beard buy a property called ‘Ty Gwyn’ for Â£ 1.2million. At the time of purchase, Mr. and Mrs. Beard and their minor children do not own any other property.
‘Ty Gwyn’ comprises a family home; a gardener’s house; and a small annex adjoining the family house.
The family home is valued at Â£ 900,000, more than two-thirds of the total consideration.
The gardener’s house is independent of the family house; has a kitchen-dining room, a bathroom, a living room and a bedroom; and has its own shut-off valve, heating system and power consumption unit
The gardener’s house is therefore likely to be considered as an annex dwelling.
The small annex adjoins the family house; has its own bedroom, bathroom and living space; shares the kitchen of the family home; and has a door leading from the annex living space directly to the kitchen of the family home (this door is not lockable); and also does not have its own front door, which means that to access it you have to walk through the living space of the family home.
The small annex is unlikely to be considered annex accommodation.
This transaction therefore concerns two dwellings – a main dwelling (the family house, including the annex) and an annex dwelling (the gardener’s house).
Mr. and Mrs. Beard can claim MDR on the basis of two dwellings and apply the subsidiary housing exception so that the main residential LTT rates apply.
Amy Bowden is Legal Officer at the Welsh Revenue Authority