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In a recent case (Bewley Limited v HMRC), it was held that higher rate stamp duty, or 3% surcharge as it is often referred, is not payable on the purchase of a property that is derelict and too run down to live in.
This could result in significant savings where properties are purchased in a state of disrepair.
However, it is clear the case’s usefulness is subject to limitations.
The Facts in the Bewley case
The salient facts were:
Of course, the 3% SDLT rate will usually apply to a residential property either where:
However, Bewley argued that the lower non-residential rates of SDLT should apply to the transaction on the basis that it was derelict and not suitable for occupation.
Unsurprisingly, HMRC disagreed.
They argued that the bungalow was a dwelling despite its state of disrepair and could be renovated to form a serviceable home.
As such, it assessed the transaction such that the higher rate of SDLT applied.
As a result, Bewley appealed and the dispute ended up in First-tier Tax Tribunal (“FTT”),
The FTT agreed with Bewley.
The FTT stated that the relevant legal test is whether the building is ‘suitable’ for use as a dwelling at the point at which the SDLT became payable.
After referring to some photographs supplied by the taxpayers, and the evidence before it regarding the heating system and the presence of asbestos, the FTT concluded that it was clearly not.
The FTT explained that the test was not whether it was ‘capable’ of such use. As the FTT stated, it was not whether ‘a passing tramp or group of squatters could have lived [there]’.
Also, it was not in question whether the property could have been modernised and renovated and then have been used as a dwelling. But that simply was not the legal test.
In other words, the wording of the legislation could not be clearer. 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?
Thus, said Thomas, the property was not a dwelling and the additional rate of SDLT did not apply. HMRC’s assessment was therefore excessive and was withdrawn.
If you have any queries regarding stamp duty derelict property or any other property tax matters then please get in touch.