The owner of a country estate in Kent has lost a tax tribunal appeal after claiming his pool house was a separate home in an attempt to reduce his stamp duty bill by £80,750.
John Smith purchased Huntbourne, an eight-bedroom house located in St Michaels, near Tenterden in Kent, for £2.6million in December 2023.
Following the purchase, Smith claimed he was eligible for multiple dwellings relief, a tax break available to buyers acquiring more than one property in a single transaction or linked transactions.
Under the tax relief rules, Smith argued that his pool house should be treated as a second property. Had HM Revenue and Customs agreed with his claim, his total stamp duty bill would have dropped from £301,250 to £220,500.
Stamp duty rules and tax relief
Stamp Duty Land Tax is a property transaction tax charged by HM Revenue and Customs on land and property purchases in England and Northern Ireland when values exceed set thresholds.
Multiple dwellings relief allowed property buyers to calculate their tax liabilities based on the average value of the dwellings purchased rather than the total transaction cost, resulting in lower tax rates.
Former Chancellor Jeremy Hunt scrapped multiple dwellings relief in June 2024 following concerns over tax loophole abuse, sparking criticism from landlords, property investors, and homebuyers.
Tribunal debate over basic domestic living
A first-tier tax tribunal heard evidence from both Smith and HMRC regarding whether the single-storey wooden-clad annexe was suitable for independent residential accommodation.
The tribunal judgment, which was first reported by The Times, specified: "The word 'dwelling' describes a place suitable for residential accommodation which can provide the occupant with facilities for basic domestic living needs."
Judge Rosa Pettifer acknowledged that the five-bedroom pool house offered "space for sleeping, together with the use of a private toilet, washbasin and shower," satisfying the threshold for basic domestic living needs.
However, Judge Pettifer ruled that a lack of privacy for anyone residing in the pool house meant the building could not properly be categorized as a separate residential dwelling.
Privacy and access to swimming facilities
In her judgment, Judge Pettifer explained that treating the annexe as an independent home would force the main house owners to prohibit themselves from using their own swimming pool.
Alternatively, if the estate owners were allowed to use the pool, they would need to be banned from using the changing room and toilet facilities located inside the annexe.
The judge noted that such a restriction would require swimmers using the pool to walk 200ft back to the main property whenever they needed to use a toilet.
Judge Pettifer concluded: "The annexe did not have sufficient facilities to meet, by reference to occupiers generally, basic living needs with a degree of privacy, self-sufficiency and security consistent with the concept of a single dwelling."
Broader property tax loopholes and reforms
While former Chancellor Hunt abolished stamp duty relief for buyers purchasing between two and five apartments in a single development, other tax relief mechanisms remain operational.
Investors buying six or more properties in a single transaction, or purchasing mixed-use properties, remain eligible for non-residential stamp duty rates, which are lower than standard residential rates.
Labour MPs have called for an end to remaining tax loopholes after billionaire Suneil Setiya saved approximately £18million in stamp duty when purchasing one of the most expensive homes in Britain.
Setiya, a co-founder of algorithmic trading firm Quadrature Capital, bought a £275million Chelsea mansion from property developer Nick Candy and his wife earlier this year.
Because the mansion was sold alongside five nearby flats, an analysis by Tax Policy Associates revealed that Setiya was able to access lower non-residential tax rates.
If the Chelsea mansion had been purchased as a single residential property, the stamp duty bill would have reached around £32million, but combining the deal with the five flats enabled the bill to be reduced to approximately £13million.
