Buying Derelict Property – Stamp Duty Land Tax Savings!

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Stamp Duty Land Tax Surcharge & Savings! – Buying Derelict Property – SDLT Facts

Key Points

  • If a property is not suitable as a dwelling then the 3% additional property surcharge does not apply
  • The test is carried out at the time the SDLT is due
  • The test is whether it is ‘suitable’ and not merely ‘capable’ of being used as such
  • SDLT is becoming increasingly complex and a second opinion might save you or your client money

We have recently assisted a client in reaching agreement with HMRC that the 3% surcharge on ‘additional property’ was not payable on the purchase of a property because it was derelict and too run down to live in.

Of course, this does not mean that this is a silver bullet for people buying fixer-uppers! Indeed, the facts are of significant importance.

SDLT – Why does it matter?

Of course, the 3% SDLT rate will usually apply to a residential property either where:

  • the property is a person’s second property or,
  • the property is acquired by a company

However, where the property is derelict it can be argued that the lower non-residential rates of SDLT should apply to the transaction. This is on the basis that the property is not suitable for occupation.

Our Case

In our case, the following facts were relevant:

  • The property was an abandoned farm cottage and had been vacant for many years;
  • The intention was to demolish it and build a new dwelling on the same site;
  • Most of the first floor had collapsed
  • All of the piping in the property had been removed (assumed stolen?)
  • Planning permission for then new property had already been granted to the previous owner.

These facts were quite similar to the recent Tribunal case of Bewley.

HMRC accepted that the 3% additional property surcharge did not apply.

Summary – SDLT & Derelict Properties

The relevant legal test is whether the building is ‘suitable’ for use as a dwelling at the point at which the SDLT became payable.

It is not a case of whether the property is ‘capable’ of such use. As the FTT stated in Bewley, it is not whether ‘a passing tramp or group of squatters could [live there]’.

Further, it does not matter whether the property can be modernised and renovated and then used as a dwelling.

One simply is required to look at the state of the property at the time of purchase and ask a simple question. Is the property suitable as a dwelling on that day?

Get Stamp Duty Licked

SDLT is becoming an incredibly complicated form of property tax and, in many cases, is being dealt with in the cut and thrust of busy conveyancing offices.

However, as the tax becomes more complex, and reliefs more and more important, is it worth you getting a second opinion to make sure you, or your clients, have not paid too much tax?

 

If you need some help or a second opinion with SDLT then please get in touch with a member of our helpful team or be sure to read more about proper tax below.

ANDY WOOD

 

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