The First-tier Tribunal has dismissed the taxpayer’s appeal in John Smith v The Commissioners for HMRC [2026] UKFTT 1351 (TC). On paper the facts look like a classic “main house plus annex” Multiple Dwellings Relief claim: a £2.6 million purchase of Huntbourne near Tenterden, a detached pool-house building more than 200 feet from the main house, its own driveway and lockable doors, kitchen facilities, shower and lavatory, separate heating plant and fuse board. The SDLT swing was £80,750 (£220,500 with MDR against £301,250 without). The Tribunal still said no.
Privacy and security did the damage. Facilities that look self-contained on a floor plan do not, by themselves, manufacture a second dwelling under paragraph 7(2)(a) of Schedule 6B FA 2003. That is the live CFO point — not nostalgia for a relief that has already been largely abolished.
Full judgment: National Archives. Practitioner note: Claritax. Leading Upper Tribunal authority still running the test: Fiander and Brower v HMRC [2021] UKUT 156 (TCC).
What actually happened
Completion was 14 December 2023. The SDLT return went in on 18 December 2023. MDR was claimed later. HMRC opened the claim and issued a closure notice on 21 February 2025 refusing relief. The FTT (Judge Rosa Pettifer and Member Helen Myerscough) heard the appeal by video on 2 July 2026 and released the decision on 18 September 2026.
Huntbourne sits on roughly three acres under a single Land Registry title. The main house is an eight-bedroom family home and was, unsurprisingly, treated as a dwelling. The annex — marketed as the “pool house” — is a single-storey clad building next to an outdoor swimming pool. Step out of its French doors and you are on the tiled pool apron. It has five rooms: a main room of about 20.74m² with kitchen facilities and island seating, a plant room, a sauna room, a shower room, and a separate lavatory/sink room. It has independent lockable entrances (five-lever mortice locks), its own driveway access from the public road, parking, underfloor heating fed by its own oil tank and boiler, a water stop tap and a fuse board.
It also shares council tax banding, postal address, electricity meter and water meter with the main house. It was not being used as a single dwelling at completion. The question was objective suitability under Schedule 6B, not actual occupation.
The legal engine
MDR sat in section 58D FA 2003 and Schedule 6B. A transaction was in scope where the main subject-matter consisted of an interest in at least two dwellings. Paragraph 7(2)(a) counted a building (or part) as a dwelling if it was “used or suitable for use as a single dwelling.” The effective date is completion under section 119 FA 2003 unless substantial performance bites earlier under section 44.
The Upper Tribunal in Ladson Preston [2022] UKUT 301 (TCC) fixed the snapshot: you test the chargeable interest as it stood at completion, not as it might be after later works. Fiander at [48] still supplies the multi-factorial map:
- “Suitable” means fit as it stands — potential with adaptation is not enough (paragraph 7(2)(b) already covers works in progress).
- A dwelling must meet basic domestic living needs with privacy, self-sufficiency and security consistent with a separate living unit.
- The test is objective and measured by reference to occupiers generally, not relatives, friends or a particular buyer’s intentions.
- There is no exhaustive checklist. Bricks-and-mortar answers vary between city flats and country annexes.
Other FTT decisions on annexes are of limited use. The Tribunal expressly followed the caution in Winfield [2024] UKFTT 734 (TC) and Packman [2024] UKFTT 954 (TC): do not jigsaw-piece findings from different fact patterns.
Where HMRC lost — and still won
HMRC ran three themes: inadequate living space, inadequate privacy/security, and shared utilities/address. The Tribunal rejected the crude space attacks. On the photos and floor plan it accepted that the main room could take a single bed and modest seating without killing circulation, and that the sauna unit could be lifted out to free storage. Shared meters and council tax were noted but were not, on these facts, decisive by themselves.
Privacy and security carried the decision.
The annex opens straight onto the shared pool. French doors and side panes are transparent glass. The appellant floated two “objectively realistic” occupancy models. First: main-house occupiers give up the pool entirely so annex occupiers enjoy exclusive amenity. The Tribunal rejected that as unrealistic for an “impressive property” where the pool is a significant amenity — some owners might concede it; occupiers generally would not. Second: shared pool use with main-house people barred from the annex. That produced the striking practical picture the Tribunal would not ignore: main-house swimmers walking more than 200 feet in swimwear, changing outdoors, and needing shower and toilet facilities after using the pool. In reality, shared pool use would pull main-house occupiers into the annex’s wet facilities. That is a material intrusion on privacy and security for occupiers generally — the sort of arrangement that works for friends or relatives, not for the objective Fiander standard.
On balance, at completion the annex did not meet basic living needs with the required degree of privacy, self-sufficiency and security. MDR failed. Appeal dismissed. Permission to appeal remains available under the FTT rules, but the first-instance fact finding is carefully built.
Why CFOs still care after abolition
MDR was abolished for land transactions with an effective date on or after 1 June 2024. HMRC’s manual at SDLTM29902 sets the transitional path: contracts exchanged on or before 6 March 2024 can still support MDR if the transaction is not excluded (later variation, assignment of rights, option exercise, sub-sale and similar traps). Exchange date must appear on the return alongside completion or the claim dies in the gateway.
So the live inventory is not “new MDR planning.” It is:
- Open enquiries and closure-notice appeals on pre-abolition and transitional claims — Smith is exactly that pipeline (completion Dec 2023, closure Feb 2025, FTT 2026).
- Residual transitional completions still crawling through conveyancing where exchange was on or before 6 March 2024 and no exclusion event has fired.
- PE and property diligence on historic SDLT positions inside SPVs, propcos and portfolio acquisitions — overstated MDR is a pure cash and warranty problem.
- Analogous “dwelling” tests elsewhere in the SDLT code and in related property-tax files where privacy, self-containment and objective suitability still matter even when Schedule 6B itself is spent.
Higher rates for additional dwellings and the post-Budget surcharge map still sit on GOV.UK higher rates guidance. Non-residential rates and bulk-purchase analysis remain live for six-or-more residential acquisitions. None of that revives a weak annex claim.
What to lock in the file this week
1. Re-open residual MDR schedules. List every live claim, enquiry, closure notice and appeal. Tag completion date, exchange date, whether a 6 March 2024 transitional path is asserted, and whether any post-exchange variation or assignment has contaminated it. Smith is a reminder that HMRC is still litigating 2023 completions into late 2026.
2. Stop treating “detached + kitchen + bathroom” as enough. Fiander is multi-factorial. Force the privacy and security narrative in the papers: sightlines, glass, shared amenities, wet-room dependency, access routes, and whether any exclusive-use story is objectively realistic for occupiers generally — not for the family who happen to be buying.
3. Freeze the completion snapshot. Photographs, floor plans, sales particulars, utility meters, title plans and access rights as at completion beat later “we could put a bed there” advocacy. Ladson leaves little room for post-completion dressing-up.
4. Diligence language for PE and propco deals. Warranties and tax schedules should ask specifically whether MDR was claimed, on what dwelling theory, whether HMRC has opened an enquiry, and whether annex/pool-house/staff-cottage arguments rely on shared leisure amenities. An £80k single-asset miss scales ugly across a portfolio.
5. Do not confuse abolition with file closure. Abolition cuts new effective-date claims. It does not delete discovery risk, closure-notice litigation, or buyer inheritance of a thin historic position. Keep the legislation.gov.uk FA 2003 Part 4 map and the National Archives tribunal feed on the watch list.
Bottom line
Smith is not a dramatic new principle. It is a disciplined application of Fiander to a photogenic pool house that failed the privacy and security limb despite real kitchen and sanitary kit and genuine physical separation. Distance and a stream do not manufacture a second dwelling if shared amenities pull strangers through the annex in practice.
If your residual MDR or property-diligence file still turns on brochure language and a floor plan, rewrite it around objective occupancy for strangers — or budget the higher SDLT and move on.
Mark Hendy is a PE-facing CFO and HMRC tax agent. This is professional commentary, not advice on your transaction.