SDLT - Uninhabitable properties shouldn’t pay the extra stamp duty surcharge on second homes

Dear All

Some of you may not be aware of a recent case that related to stamp duty surcharge. 

It may be a way that Empty Property Officers can add value to their clients as well as advising them on the usual reduced vat schemes.

Since 2016, there has been an extra 3% stamp duty tax on properties bought as an additional property to the buyer’s home. Now homebuyers, buy to let investors, and developers buying an additional property might be able to cut out the surcharge if the home is derelict. 

A person buying a derelict or semi derelict property can now refer to this case when self-assessing SDLT in making a decision as to whether the property should be subject to SDLT at the higher residential rates or at the non-residential rates.  A buyer might seek to use the argument that even if the building is “capable” of use as dwelling, the test of “suitability” requires a higher standard.  The decision also suggests that even temporary factors can make a building unsuitable for use as a dwelling.

A First-Tier tribunal ruling that overturned a decision to charge the additional 3% stamp duty for a second property, because it was not deemed suitable to be used as a dwelling on the date of purchase.

HMRC have to date applied the stamp duty surcharge for properties capable of being used as a dwelling in the future.

FIRST-TIER TRIBUNAL TAX CHAMBER Summary details of the decision: (Decision attached below)

Decision Number: TC 06951
Appellant: P N Bewley Ltd
Respondent: The Commissioners for Her Majesty’s Revenue & Customs
Date of Decision: 28/01/2019
Main Category: STAMP DUTY
Main Subcategory: Land tax

Notes: STAMP DUTY LAND TAX – bungalow and plot of land acquired with planning permission for demolition and building of new dwelling on site – whether higher rates of SDLT in Schedule 4ZA FA 2003 apply – whether bungalow building “suitable for use” as a dwelling on date of transaction – held not so suitable – self assessment as amended by HMRC reduced to remove higher rate charge and to reflect non residential rate.

6.On 19 February 2018 the appellant appealed against the amendment to their return, repeating their view that the property was not habitable at the time of purchase and unviable as a renovation or refurbishment. Mr Lord gave his view of the matter and said that his decision had been referred for review (although he had not offered one, nor had the appellant requested one).

FACTS:

The existing building at Rosemount. From a notice of decision issued by North Somerset Council on 18 February 2016 to Mr R Cooke, the then freehold owner of Rosemount, we find that the description of Mr Cooke’s application for planning permission was: “Demolition of existing dwelling and erection of replacement building”. We find from the evidence of Mr Bewley that the bungalow at Rosemount had been occupied by an elderly lady but the she had moved out in 2014 or earlier, some time before their purchase. From a demolition survey issued on 13 December 2016 commissioned by the appellant and prepared by Philip Love of Enfield Group Ltd we find that:

  1. Asbestos-containing materials had been identified during the Demolition Survey. (2) The asbestos materials identified were in “good condition” with risk scores of 3 to 6 (out of 10). The recommendation for these materials was “urgent removal”. (3) “Building Notes” showed that the heating system had been removed and the remains of hessian insulation was still under the floor boards.

A letter of 19 February 2018 from the appellant to HMRC making its appeal said that while HMRC had researched the property (on the internet) and found that it was being marketed as an “ideal refurbishment project” in September 2014, the agent’s details did not contain any photographs of the condition of the property at the time and the property had been left empty and deteriorated since then, not being habitable due to the removal of the heating, copper pipes and floorboards.

Submissions

HMRC say:

(1) In Part 4 FA 2003 “dwelling” takes its ordinary meaning, and they say they cite the Oxford English Dictionary and the National Census

(2) That ordinary meaning does not require the property to be mortgageable, meet the better homes standard or to be of standard construction, and a dwelling does not change its nature because it falls into dilapidation.

3) The building came within the meaning of “residential property” for the purposes of s55 FA 2003 because it was not excluded by s116 FA 2003; the plot 7 was a residential plot in a residential area;and the intention was at all times for the plot to continue to be a residential plot comprising a dwelling and its grounds.

(4)A building under construction for use as a dwelling comes within the definition.

(5)The appellant used a code on the SDLT return which identified it as residential.

(6)The fact that no buyer could be found to refurbish it did not mean the property ceased to be a dwelling or was not capable of being renovated and occupied as a dwelling.

(7)The planning permission was indicative of the intention that the property was to remain a residential property. This “course of action” was a commercial decision, and does not indicate that the existing property was not capable of being utilised as a dwelling.

(8)The presence of asbestos in the existing building did not prevent its renovation or reoccupation, as the critical risk would come during demolition.

DECISION:

1. This was an appeal by P N Bewley Ltd (“the appellant”) against the amendment of a stamp duty land tax (“SDLT”) return made by them on 8 February 2017. The amendment was made by Mr Joel Lord, an officer of the respondents (“HMRC”) and was notified to the appellant in a letter of 26 January 2018 giving the officer’s conclusion of his enquiry into the return. The amendment increased the SDLT payable from £1,500 to £7,500.

Decision 107. And so our decision under paragraph 42(2)(a) Schedule 10 FA 2003 is that the appellant is overcharged by a self-assessment (both as originally made and as amended by HMRC) and we reduce the self-assessment to £1,000.

The time limit for appealing the decision passed without an appeal being lodged.

This case will mean that a significant number of investors / developers will benefit from the new boundaries regarding the surcharge which will be blow to HMRC as around half (£1.68 billion) of all SDLT revenue (£3.8 billion) was squeezed from additional dwellings in 2018.

There is a more comprehensive article written by John Shawcross as to the possible implications associated with the case (see attached)

Hope the above is of assistance.

Regards

Andrew Lavender

Housing Training and Consultancy Ltd

Practice: