Pool House Ruled Not a Second Home in Tax Loophole Crackdown

A homeowner's attempt to claim tax relief on a country estate purchase by classifying its pool house as a second property has been rejected by a judge. The ruling comes amid an ongoing effort to curb stamp duty loopholes.

In December 2023, John Smith acquired Huntbourne, an eight-bedroom property in St Michaels, Kent, for £2.6 million. Smith sought eligibility for Multiple Dwellings Relief (MDR), a tax benefit that offered a lower stamp duty rate for purchasers acquiring multiple properties in a single or linked transaction. He contended that his pool house qualified as a separate property, which would have reduced his stamp duty bill by £80,750, from the full £301,250 to £220,500.

However, a first-tier tax tribunal and its presiding judge, Rosa Pettifer, determined that the pool house did not meet the criteria for a separate dwelling. The judgment, reported by The Times, defined a dwelling as a place suitable for residential accommodation with facilities for basic domestic living needs. While the five-bedroom pool house included sleeping space and private bathroom facilities, the judge found a lack of privacy for its occupants in relation to the main house. This lack of privacy meant it could not be considered a self-sufficient dwelling.

The ruling implies that for the annexe to be considered separate, the owners of the main house would have to abstain from using the pool, or be barred from using the changing and toilet facilities within the annexe. The court noted that this would necessitate swimmers walking approximately 200 feet back to the main house to use the restroom.

Multiple Dwellings Relief was abolished by former Chancellor Jeremy Hunt in June 2024. The change aimed to close a loophole that allowed landlords, investors, and homebuyers to reduce their stamp duty obligations. While MDR has been largely removed for residential properties, investors purchasing six or more properties, or mixed-use properties, may still be eligible for lower non-residential stamp duty rates.

The case highlights scrutiny of tax arrangements that exploit property transaction rules. Previously, Labour MPs called for an end to similar tax loopholes after reports that billionaire Suneil Setiya saved an estimated £18 million on stamp duty when purchasing a £275 million Chelsea mansion. Setiya's purchase included the mansion along with five flats on a nearby road, allowing for a significantly reduced stamp duty bill compared to if the transaction had been treated solely as a residential property purchase.