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Stamp Duty Land Tax on Uninhabitable Properties

In 2016, the government introduced the Stamp Duty Land Tax (SDLT) surcharge which led to a 3% increase in SDLT for purchases of additional residential properties by individuals and all properties purchased by a company.

 

However, following the decision in a tax case in early 2019, it has been confirmed that the surcharge is not payable where the property is uninhabitable at the time of purchase.

 

Purchasers of property who have incurred the surcharge since 2016 (on properties which they believe were uninhabitable at the time of purchase) are able to request a refund from HMRC if they are able to prove the property is not a dwelling (see below). Several of JWR clients have already received a refund 6 – 8 weeks after a claim has been made.

 

The decision in the tax case (Bewley v HMRC) was made based on the principle that the surcharge refers to the purchase of a single dwelling and paragraph 18 of Schedule 4ZA of Finance Act 2003 deals with the definition of a dwelling which is as follows:

 

A building or part of a building counts as a dwelling if—

 

(a)it is used or suitable for use as a single dwelling, or

(b)it is in the process of being constructed or adapted for such use

 

In the case above, the tribunal stated that although the property in question was capable of being a dwelling, at the time of purchase it was unsuitable for that purpose. In this instance the property had radiators and pipework removed and with the presence of asbestos would have prevented any repairs or alterations.

Furthermore, as the property was deemed not suitable to be a dwelling, not only was it not subject to the 3% SDLT surcharge, it was treated as a non-residential property and liable to SDLT at the applicable rates accordingly (see below).

 

HMRC have since stressed that there is a clear distinction between derelict property and a dwelling that is essentially habitable, but in need of modernisation, renovation or repair, which can be addressed without materially changing the structural nature of the property.

 

In this case, if the building was used as a dwelling at some point previously and permission to use as a dwelling continues to exist at the effective date of transaction, it will be considered suitable for use as a dwelling. Whether a property is derelict to the extent that it no longer comprises a dwelling is a question of fact.

 

The removal of, for example, a bathroom or kitchen facilities before sale will not be regarded as making a building unsuitable for use as a dwelling. These are internal fittings and would not constitute structural changes to the dwelling that would mean the building is no longer suitable for use as a dwelling. A new kitchen or bathroom suite could be fitted relatively quickly and cheaply and is a common improvement to a dwelling. Likewise, substantial repairs required to windows or a roof would also not make the building unsuitable for use as a dwelling. Other examples of issues which may be easily addressed in the short term include the need to switch services back on and dealing with an infestation of pest.

 

As stated in the First Tier Tribunal decision released on 28 January 2019 (Bewley Case), ‘a dwelling will, as a minimum, contain facilities for personal hygiene, the consumption of food and drink, the storage of personal belongings, and a place for an individual to rest and to sleep’.

 

Example

 

The below example shows the overpaid SDLT on the purchase of a property for £300k:

 

If the property was treated as an additional property for an individual, the SDLT would have been as follows:

 

0 – £125,000 x 3% = £3,750

Next £125k @ 5%   = £6,250

£50k x 8%          = £4,000

 

Total SDLT paid    = £14,000

 

However, if the property purchased had been subject to SDLT as a Non-Residential property, the liability would have been as follows:

 

Up to £150k @0%      = £Nil

Next £100k @2%    = £2,000

£50k @ 5%          = £2,500

 

Total SDLT due      = £4,500

 

SDLT overpaid         £9,500

 

Residential SDLT Rates

Property or lease premium or transfer value SDLT rate
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%

Non-Residential SDLT Rates

Property or lease premium or transfer value SDLT rate
Up to £150,000 Zero
The next £100,000 (the portion from £150,001 to £250,000) 2%
The remaining amount (the portion above £250,001) 5%