Your pool house is not a second home, judge rules on stamp duty loophole buyer used to try to save £80,750

The owner of a country estate in Kent has lost a battle with the taxman after claiming his pool house was a separate property and therefore eligible for tax relief.

In December 2023, John Smith paid £2.6million for Huntbourne, an eight-bedroom house in St Michaels, near Tenterden in Kent.

Smith claimed that he was eligible for multiple dwellings relief, a lower tax rate for those buying more than one property at a time, because his pool house constituted a separate property.

The tax break – which was scrapped by Jeremy Hunt in June 2024 to the dismay of landlords, investors and homebuyers – allowed stamp duty relief on purchases of two or more properties in a single transaction, or in linked transactions.

Smith argued that he too was eligible for the tax relief. If HMRC agreed that he was buying two homes, this would have seen his stamp duty bill reduced to £220,500 rather than the full £301,250, a difference of £80,750.

A first-tier tax tribunal saw Smith and HMRC debate whether it was possible to live in the single-storey wooden-clad annexe and therefore whether it could be called a second property.

The judgment, first reported by The Times, said: ‘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 said that the five-bedroom pool house included ‘space for sleeping, together with the use of a private toilet, washbasin and shower,’ and met the ‘basic living needs’ standard.

But the lack of privacy for those living in the pool house mean it could not properly be considered as separate, she said. 

Judge Pettifer said that the owners of the main house would have to ban themselves from the pool, or be allowed to use the pool but only if they were banned from using the changing or toilet facilities in the annexe.

She added that it would mean swimmers would have to walk 200ft back to the main house to visit the toilet.

‘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,’ Judge Pettifer said.

Former Chancellor Hunt abolished stamp duty relief for investors who buy between two and five apartments in the same development as part of the same or a linked transaction.

But investors buying six or more properties, or a mixed-use property, are still able to apply non-residential stamp duty rates, which are lower than residential rates.

Labour MPs have called for an end to the tax loophole after billionaire Suneil Setiya paid approximately £18million less in stamp duty when he bought one of Britain’s most expensive houses.

Setiya, who co-founded trading firm Quadrature Capital, bought the £275million Chelsea mansion from property tycoon Nick Candy and his wife earlier this year.

Tax Policy Associates analysis found that if the deal had been treated as a residential property, he would have had to pay stamp duty of around £32million. 

But the mansion was sold together with five flats on a nearby road and his bill could have been reduced to about £13million.