No additional Stamp Duty on uninhabitable properties – a win for developers
On 1st April 2016 the government introduced the Stamp Duty Land Tax (SDLT) surcharge for purchases of additional residential properties by individuals, and all properties purchased by a company.
However a tribunal decision earlier this year – PN Bewley Limited v HMRC [2019] - established that the surcharge is not payable where the property is uninhabitable at the time of purchase.
This means that property developers and other investors who purchased a derelict property, perhaps with a view to a renovation or rebuild project, could have overpaid on tax, entitling them to a refund.
When is a property uninhabitable?
PN Bewley Limited v HMRC [2019] involved the purchase of a dilapidated bungalow in Weston Super Mare. The property was connected to services such as gas and water, but the pipework and other conduits facilitating those services had been removed. It also had missing floorboards and asbestos which was reported to be in need of immediate removal for safety reasons.
The tribunal concluded that the question to be asked was whether the property was “suitable for use as a dwelling” at the time of purchase.
Whilst the judges did not provide any clear examples in relation to what would render a property suitable for use as a dwelling, it did consider a variety of case law, comparable legislation and the HMRC’s own guidance literature in order to guide its assessment, and the reasoning behind that assessment can be applied to individual cases.
In this case, the Tribunal decided that the overall condition described above rendered the property unsuitable for use as a dwelling and as such the surcharge did not apply and the property was only liable to be assessed at non-residential rates.
The facts will need to be looked at on a case by case basis however to ascertain whether the criteria for suitability is met in each case.
What evidence will I need?
If you wish to apply for a tax rebate, or exemption on this basis, the HMRC will likely wish to see evidence in relation to the condition of the property.
Remember it is the condition of the property at the time of purchase which is relevant, not since. Accordingly, all evidence must clearly relate to the purchase date. Dated photographs, surveys, insurance reports, quotes for work and to an extent, eye witness accounts could all be useful.
If you are purchasing a derelict property now, ensure that you gather a good bank of quality evidence of the condition at purchase before any work is carried out to the property, and before much time passes from the date of purchase.
The HMRC may also wish to see evidence of the condition of the property some time prior to the sale, or an explanation as to the history of the condition, to ensure that it has not been rendered intentionally uninhabitable for the purposes of tax avoidance and it might be wise to seek this from your seller.
The outlook
The SDLT surcharge was brought in largely to disincentive second property ownership and support the housing market, but with the loophole now exposed, the incentives are somewhat reversed. For those reasons, teamed with loss of potential revenue, it is expected that the government will seek to close this loophole as soon as possible.
Meanwhile, developers and investors may do well to look to the derelict building market for their next investment and those with a derelict property on their hands may find it easier to sell now before the loophole closes. Estate Agents and conveyancers should also bear the exemption in mind when working with their clients.
If you wish to obtain an opinion as to whether a property is likely to be considered uninhabitable for stamp duty surcharge exemption or rebate purposes, please contact our property litigation team:
Louise James Claire Bunton
Article published by c.bunton@duttongregory.co.uk.
