When a Dwelling is not a home, Stamp Duty Land Tax Implications

Whether a property is suitable to be used as a dwelling or not is an important question for Stamp Duty Land Tax (SDLT) purposes. This question will be of importance to:

  • Anyone buying a dilapidated property,

  • Anyone who will own two or more residential properties and not replacing their main residence, or

  • Any company who buys a residential property in the company’s name.

In the recent case of P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC) HMRC challenged the tax payers’ SDLT assessment that only £1,500 of SDLT was payable on a residential property bought for £200,000. It was HMRC’s contention that the so called second home surcharge, or in this case the company surcharge, of an additional higher SDLT rate of 3% should be paid, which, if correct, would result in a SDLT liability of £7,500.
The property bought was land with a bungalow. The buyer’s intention was to demolish the bungalow after completion of their purchase transaction because it was in such a poor state of repair: although connected to water, drainage, gas and electricity services, the radiators, heating system and pipework had been removed, and asbestos was present.
This issue of whether the additional higher rate of 3% should be paid came down to the question of whether the property was suitable for use as a dwelling at the date of completion of the purchase transaction.
It was irrelevant that the property was capable of becoming suitable in the future if renovated or demolished, as was the buyer’s intention, and replaced by a newly constructed dwelling.
It was also irrelevant that planning permission existed to demolish and construct a new building.
The court concluded that at the time of completion of the purchase, the property was not suitable as a dwelling due to its poor state of repair.
The outcome was that the taxpayer should have only paid SDLT of £1,000 only, based on the property being regarded as non-residential, and so avoided paying SDLT at the residential rate of £1,500 and, because the buyer was a company, avoided paying SDLT at the higher SDLT of 3% at £7,500.
Conclusion: If you are buying a dilapidated property that is in such a condition so as not to be used as a dwelling, whether as an individual or as a company, then you should take legal advice as to the completion of the SDLT Return as this may lawfully reduce the amount of SDLT that will be payable on your purchase transaction. It is best to obtain surveyor advice as to the state and condition of the property, and the surveyor’s opinion as to whether the property can be used as a dwelling in its current state.
We can help in advising on the potential SDLT payable and issues, and we can act for you on your purchase transaction. Get in touch with Philip on 01530 266 000, or to send him an email click here.