SDLT Enquiries: How HMRC Challenges Multiple Dwellings Relief & Mixed-Use Claims

Stamp Duty Land Tax has quietly become one of HMRC's most active enquiry areas. Buyers who claimed Multiple Dwellings Relief before it was abolished, and buyers who treated part of a residential purchase as non-residential because it included a paddock, annexe or patch of woodland, are receiving enquiry letters years after completion, often for sums running into tens of thousands of pounds.

Why SDLT has become an HMRC enquiry target

SDLT is a self-assessed tax: your conveyancer files the return, HMRC does not check it at the point of submission, and the money changes hands on the strength of a form nobody at HMRC has yet looked at. That gap between filing and scrutiny is exactly where HMRC's compliance activity now concentrates, particularly on higher-value residential purchases where a claimed relief or a mixed-use classification has significantly reduced the tax paid.

Two areas account for the great majority of the SDLT enquiries we now see: historic claims to Multiple Dwellings Relief (MDR), and claims that a purchase was “mixed-use” and therefore taxed at the lower non-residential rates rather than the residential rates (with the higher-rate surcharge on top, where it applied). Both areas have produced a steady run of tribunal decisions, and HMRC has become noticeably more willing to open enquiries and litigate them.

Multiple Dwellings Relief: abolished, but not gone as an enquiry risk

MDR allowed a buyer purchasing two or more dwellings in a single or linked transaction to calculate SDLT on the average price per dwelling rather than the total price, often producing a substantially lower bill, buying a main house with a self-contained annexe, for example, and taxing the two as separate, lower-value dwellings. The relief was abolished by Finance Act 2024 for transactions with an effective date on or after 1 June 2024, subject to a narrow transitional exception for contracts exchanged on or before 6 March 2024.

Abolition stops new claims. It does nothing to protect a claim already made on a return filed before that cut-off. Every MDR claim submitted before 1 June 2024 remains within HMRC's reach, either through a routine enquiry opened within the statutory window, or, once that window has closed, through a discovery assessment. HMRC's practice has settled into a recognisable pattern of attack: disputing whether the “second dwelling” genuinely met the legal definition of a dwelling at the effective date (a granny annexe with no independent kitchen facilities being a common flashpoint), disputing whether it was truly self-contained and separately habitable, and re-characterising what was claimed as multiple dwellings as, in substance, a single dwelling with ancillary accommodation.

A separate relief, allowing purchases of six or more dwellings in one transaction to be taxed at the lower non-residential rate rather than the residential rate, was not abolished alongside MDR and remains available. It is frequently overlooked by buyers and advisers focused on the MDR abolition, and is worth checking on any larger portfolio purchase.

Mixed-use claims: the paddock, the stream and the tribunal's fact-finding exercise

The government has explicitly declined to change the SDLT treatment of mixed-use purchases, meaning the lower non-residential rates remain available wherever a transaction genuinely includes non-residential land or property alongside a dwelling. That has kept mixed-use claims as a live and, from HMRC's perspective, heavily targeted area, because the incentive to stretch the definition is considerable: a garden, paddock or patch of amenity land re-labelled as “non-residential” can shift an entire high-value purchase out of residential rates (and the higher-rate surcharge, where applicable) altogether.

The tribunals have not given a clean answer either way, which is precisely why this area keeps generating litigation. In Suterwalla v HMRC [2024] UKUT 188 (TCC), the Upper Tribunal upheld HMRC's position that an adjoining paddock was non-residential, on the basis that it had a separate Land Registry title, was not close to or visible from the house, was accessible only by a small gate, and did not support or form an integral part of the residential property. But the same fact pattern can cut the other way: in Brzezicki v HMRC [2026] UKUT 00125, the Upper Tribunal held that a fishing stream and a separate island included in the purchase were part of the residential grounds, not a distinct non-residential asset. The lesson from both decisions is the same: mixed-use status is a detailed, fact-sensitive finding about physical separation, access, visibility and function, not a label a buyer can apply because part of the land had a grazing licence or generated a small rental income.

How an SDLT enquiry actually starts

HMRC can open an enquiry into an SDLT return within the statutory enquiry window, broadly nine months from the filing date, provided the return was filed on time. Within that window, HMRC does not need a special reason to ask questions; it can simply write requesting further information about the transaction, the relief claimed or the basis for a mixed-use classification.

Once the nine-month window has closed, HMRC's options narrow. It must instead rely on a discovery assessment, which carries a materially higher bar: HMRC has to show that the loss of tax was brought about carelessly or deliberately, or that it could not reasonably have been expected to be aware of the insufficiency from the information made available in the original return. This distinction matters enormously in practice. A discovery assessment raised years after completion is frequently vulnerable to challenge on exactly this point, particularly where the original return (or the accompanying SDLT1 supplementary pages) disclosed the relevant facts clearly enough that HMRC could, in principle, have queried them at the time.

Responding to an SDLT enquiry or discovery assessment

The first and most important step is establishing which route HMRC is actually using, an in-time enquiry or an out-of-time discovery assessment, because the burden HMRC has to meet is very different between the two. From there, the priorities are gathering the evidence that existed at the effective date of the transaction (floor plans, the estate agent's particulars, planning history, utility arrangements for any annexe, and evidence of how any non-residential land was actually used and by whom) and assessing honestly, before HMRC does, whether the original claim will hold up.

Where the underlying facts support the claim, the case is about marshalling and presenting that evidence persuasively, drawing on the specific factors the tribunals have identified as decisive. Where the facts are weaker, the case is about limiting the damage, disputing behaviour categorisation to reduce any penalty, checking whether a discovery assessment was validly raised at all, and, where the position is genuinely borderline, weighing a negotiated settlement against a tribunal appeal.

How these cases typically unfold

Case A: The annexe that wasn't quite separate

A family buys a £1.1m house with a converted garage annexe used by an elderly parent, and claims MDR on the basis of two dwellings, reducing the SDLT bill by roughly £35,000 against the single-dwelling residential charge. HMRC opens an enquiry within the nine-month window after the conveyancer's own file note records that the annexe shared its hot water supply with the main house and had no independent means of escape. Working through the evidence, the annexe falls short of the “single household” test the case law demands. Rather than litigate a weak claim, the family agrees a settlement reflecting the correct single-dwelling liability, interest, and a reduced penalty secured by demonstrating that professional advice had been taken and disclosed in good faith, materially better than the deliberate-behaviour penalty HMRC initially proposed.

Case B: The paddock HMRC couldn't dislodge

A couple buy a £2.3m property with 3.8 acres, including a fenced paddock on a separate title, accessed only through a locked gate from the lane rather than the garden, and let on a genuine grazing licence to a third party who runs a small livery business from it. They pay SDLT at the mixed-use rate. HMRC opens a discovery assessment four years later, arguing the whole site should have been taxed as residential. Because the couple retained the grazing licence, the livery operator's business rates correspondence and photographs showing the physical separation from the point of purchase, the discovery assessment is successfully appealed on the facts, materially assisted by the reasoning in Suterwalla. HMRC also fails to establish that the original return withheld information it could not reasonably have queried at the time, undermining the discovery assessment on procedural grounds as well.

Penalties and the appeal route

Where a return understated the SDLT due, a penalty calculated by reference to the potential lost revenue can apply, scaled by culpability, careless, deliberate, or deliberate and concealed, and reduced according to whether the disclosure was prompted or unprompted and how far the taxpayer cooperated. This mirrors the general Schedule 24 behaviour-based penalty framework used across HMRC's other tax regimes. Late filing and late payment carry their own separate penalty and interest rules, running from the original 14-day filing and payment deadline regardless of any subsequent dispute about the underlying relief.

Any SDLT assessment or penalty can be challenged through a statutory review by a different HMRC officer, and, if that does not resolve matters, an appeal to the First-tier Tribunal (Tax Chamber), the same route and time limits that apply to other HMRC decisions.

Related guides in this series

• HMRC rental property investigations: the complete guide
• Discovery assessments: the complete guide
• Discovery assessment time limits: 4, 6 and 20-year windows
• The “staleness” defence explained
• Estimate your penalty