Tax Tribunal ruling favours landlords

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Stamp Duty Surcharge:

Derelict properties may be exempt the SDLT surcharge.

The Stamp Duty Land Tax (SDLT) paid by landlords on purchasing
a buy-to-let, and for those purchasing a second home, including when a 1^st
home has not been sold on transition, attracts a 3% surcharge.

First announced in the 2015 autumn statement, this surcharge
became effective from 1st April 2016 for exchanged contracts after 26 November
2015.

However, following a recent ruling by the First Tier Tax Tribunal
(PDF) the higher rate of SDLT may not be payable if it can be shown that
the purchased property is too dilapidated to live in.

In the case of PN Bewley Ltd against HMRC, the plaintiff
argued that where second properties are purchased which are deemed as
uninhabitable upon completion of the sale, they do not constitute as a “dwelling’
as defined under the Finance Act 2003.

The property and transaction in question involved a derelict
bungalow and plot of land in Weston-super-Mare. A purchasing couple, Paul and
Nikki Bewley, had set-up a limited company to acquire the property for £200,000
in January 2017. Their intention was to demolish the bungalow and re-build with
a new dwelling on the same site. The couple had acquired the property with planning
permission already granted for this change, to the previous owner.

Before, the purchased property had been vacant for several
years. The central heating system had been removed, and the wall, ceilings and
floors were full of holes following surveyors’ inspections and there was said
to be dangerous white asbestos cement present.

The Bewleys argued that they should only pay the standard
rate of SDLT since the property was clearly derelict and not suitable for
occupation, but HMRC disagreed. It argued that the bungalow was a dwelling
despite its dilapidation, and could be renovated to form a serviceable home. It
then amended the Bewleys’ tax return applying the higher rate of SDLT.

The Bewleys appealed to the First-tier Tax Tribunal and the
ruling went in their favour.

After carefully considering the case Judge Richard Thomas
said that the test set out in law is whether the building is “suitable� for use
as a dwelling at the point at which the SDLT became payable. After examining the
photographic evidence supplied, he decided that in this case it clearly was
not.

Accordingly, the judge ruled that the Bewleys had been
overcharged, and he reduced the self-assessment SDLT bill.

The case underlines the importance to landlords, developers,
agents and conveyancers to establish the condition of a purchased property, and
it opens up the possibility that developers and landlords may have paid an
inappropriate amount of SDLT and may be in a position to reclaim.

Stamp Duty Land Tax – Residential Rates

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