Partner Luke McMath, in our Residential Property team, is a member of the Stamp Taxes Practitioners Group. He explains how the condition of a property can affect the level of Stamp Duty Land Tax (SDLT) payable on dilapidated or derelict properties.
The rates of SDLT vary significantly depending on whether a property is classified as residential or non-residential. This is particularly true where a property is being purchased by a company or will be a second property where it is likely that a 3% surcharge of SDLT will apply to the purchase.
In 2019, there was the First-Tier Tribunal case of P N Bewley Ltd v HMRC. The particular property in question had been empty for three years and the heating system and floorboards had been removed. It also contained asbestos and the view of the taxpayer was that the property was not habitable at the time of purchase and unviable as a renovation or refurbishment. The Tribunal applied the test of whether the property was suitable as being used as a dwelling at the SDLT tax point. They concluded that it was not suitable for use as a dwelling and that the non-residential rates should therefore apply to the purchase.
This case has been relied upon by purchasers of dilapidated or derelict properties and it is not surprising that there have therefore been further Tribunal decisions since relating to this.
The latest of these is Henderson Acquisitions Ltd v HMRC.
In this particular case, the property was tired, missing floorboards, and had defective electricity and central heating systems. HMRC submitted that for the nature of a residential dwelling to change so as to become non-residential dwelling then its condition should be poor enough that the property required demolition. Whilst this extreme has not been adopted by the tribunal, it is an indication of the general view of HMRC.
The Tribunal agreed with the analysis of another recent case of Mudan which noted: “Disrepair which can be cured (things which are not fundamental, but need fixing, as the FTT put it in Fiander) is not enough, nor is it necessarily enough that there is a feature of the property that makes it potentially more dangerous to inhabit than one would normally expect (unsuitable and potentially dangerous cladding is the example from Fish Homes).
It must be unrealistic to expect someone to live in the property in its current state (perhaps because it is too dangerous or unpleasant to inhabit) and it must require more than repair, renovation (the words of Upper Tribunal in Fiander), or ‘fixing’ non-fundamental issues to make it suitable.”
The Tribunal commented: “In our view, the majority of renovations will involve making a house, which is suitable for use as a dwelling, a habitable residence meeting modern building regulations and becoming a comfortable home ready for immediate occupation.”
In most cases, tired properties are unlikely to be sufficiently dilapidated so as to qualify for an assessment of SDLT at the non-residential rates, but each case will still need to be considered on its own merits.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
