What happens if HMRC rejects a Multiple Dwellings Relief claim and a refund of adviser fees is due?

Introduction

People often search for this issue after making a Stamp Duty Land Tax claim for Multiple Dwellings Relief (MDR) and then hearing that HMRC has not accepted it. The immediate questions are usually practical: whether the SDLT saving has to be repaid, whether the adviser must refund its fees, and what happens next.

This article explains the position in general terms where an MDR claim was made for a residential property, HMRC rejected the claim, and the adviser then confirmed that its fees would be refunded under its own terms of business.

The Question

A taxpayer instructed an SDLT adviser to submit a claim for Multiple Dwellings Relief in relation to a property purchase. HMRC did not accept the claim. The adviser then wrote to confirm that, because the claim had failed, it would refund the fees previously paid for the claim work.

The practical issue is: what does this mean for the taxpayer, and what should they check when an MDR claim has been refused and a fee refund is being processed?

Nick’s Explanation

Nick’s explanation, in anonymised form, was straightforward. He confirmed that the adviser had refunded the fees in line with its terms and conditions where an HMRC enquiry resulted in the claimed SDLT position being reversed.

The key point is that there are really two separate matters:

• the tax position with HMRC, including whether the MDR claim stands or fails; and
• the contractual position between the taxpayer and the adviser, including whether the adviser must refund its fees if the claim is not successful.

In substance, Nick’s message was that the claim had not succeeded with HMRC and, under the adviser’s agreed terms, the fees were therefore being repaid.

The Law

Multiple Dwellings Relief was provided for by Schedule 6B to the Finance Act 2003. Broadly, where a purchaser acquired an interest in two or more dwellings in a single transaction or linked transactions, MDR could reduce the SDLT charge by applying the residential rates to the mean consideration attributable to each dwelling, subject to the statutory minimum rate where applicable.

For many disputes, the central legal question was whether what was bought actually included more than one “dwelling” for SDLT purposes. That turned on the facts and on the statutory meaning of a dwelling in Schedule 6B.

HMRC has increasingly challenged MDR claims where an annexe, outbuilding, or part of a property was said to be a separate dwelling but did not, in HMRC’s view, meet the legal test.

Although MDR has now been abolished for most new transactions, it still matters for historic claims, amendments, enquiries and disputes concerning transactions that took place while the relief was in force.

Analysis

When HMRC rejects an MDR claim, the position should be analysed in stages.

1. First, identify whether HMRC has simply opened an enquiry, issued a closure notice, or otherwise formally concluded that the relief is not available. The exact procedural stage matters because it affects whether there is still scope to challenge HMRC’s view.

2. Second, separate the tax outcome from the adviser’s fee arrangement. HMRC’s refusal of MDR means the SDLT position claimed is not accepted. But whether the adviser keeps or returns its fee depends on the contract between the adviser and the client, not on SDLT law itself.

3. Third, check the adviser’s terms and conditions. Some SDLT reclaim businesses agree to refund fees if HMRC defeats the claim, especially after enquiry. Others do not. If the adviser has expressly confirmed a refund under its terms, that is a contractual matter in the taxpayer’s favour.

4. Fourth, confirm whether the taxpayer must repay SDLT, interest, or possibly penalties. If the claim was made and HMRC later disallows it, the taxpayer may have to pay the additional SDLT that would have been due without MDR, together with statutory interest. Penalties depend on the facts, including whether the return was careless or whether there was a reasonable basis for the claim.

5. Fifth, consider whether there is any realistic basis to dispute HMRC’s decision. In many modern MDR disputes, the issue is whether there were truly two dwellings at the effective date of transaction. The courts have taken a stricter approach than many earlier marketing materials suggested.

If the claim depended on arguing that part of a property was a separate dwelling, the factual threshold is important. A space does not become a separate dwelling merely because it has some independent facilities. The overall character, degree of separation, and suitability for use as a dwelling are all relevant.

Where the argument is that the property was uninhabitable or not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That case makes clear that ordinary disrepair, dated condition, or the need for works will often not be enough. The condition generally has to be serious enough to take the property outside the category of a dwelling for SDLT purposes at the effective date of the transaction.

So, if HMRC has rejected the claim and the adviser has accepted that outcome for fee purposes, the practical significance is usually that:

• the taxpayer remains responsible for the SDLT position with HMRC;
• the adviser’s own fee may be refunded if its contract provides for that; and
• any further challenge should only be pursued if there is a sound legal and factual basis.

Outcome

The practical conclusion is that a failed MDR claim does not automatically leave the taxpayer out of pocket for adviser fees if the adviser’s terms say those fees are refundable after an HMRC challenge. However, that fee refund is separate from the taxpayer’s underlying SDLT liability.

If HMRC has disallowed the claim, the taxpayer should assume that the SDLT saving itself is at risk unless the decision is successfully appealed. The fee refund helps with the cost of the failed claim, but it does not reverse HMRC’s tax decision.

Practical Steps

1. Obtain and keep the adviser’s written confirmation that the fees are being refunded.

2. Check the adviser’s engagement terms to confirm the basis of the refund and whether it is full or partial.

3. Review HMRC’s correspondence carefully to see whether the claim has been formally refused and whether there is any appeal deadline.

4. Work out the financial position, including any SDLT, interest, and possible penalties that may now be due.

5. Assess whether the original MDR argument was genuinely strong, especially if it relied on an annexe, outbuilding, or alleged uninhabitability.

6. If the case turns on suitability for use as a dwelling, apply the stricter approach now reflected in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

7. Take independent specialist advice before pursuing any appeal or further correspondence with HMRC.

Conclusion

If HMRC rejects an MDR claim, the taxpayer may still recover the adviser’s fees if the adviser’s contract provides for a refund. But that does not change the underlying SDLT position. The key is to separate the contractual fee refund from the tax dispute, check the procedural position with HMRC, and only continue the fight if the facts and the law support it.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 6B
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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