Stamp Duty Land Tax On Uninhabitable Properties

Another day, another taxpayer at a tribunal. This time, due to the purchase of a dilapidated bungalow. HMRC demanded an extra £7,500 in Stamp Duty Land Tax ...

It was January 2019 where the courts decided in favour of the taxpayer in the case of HMRC vs PN Bewley Limited. It was obvious to anyone who saw the property that it couldn't be lived in, but that didn't stop HMRC from arguing that more Stamp Duty Land Tax (SDLT) was due.

"After setting up a company, Mr and Mrs Bewley purchased a bungalow for £200,000!"

It was in a serious state of disrepair and was riddled with asbestos. Most of the roof was missing, it didn't even have floorboards, and all the windows were broken. They intended to completely demolish it and build a new property on the plot.

Their solicitors submitted an SDLT1 return to HMRC because the bungalow was a residential property. In addition, the company had to pay the 3% higher rate charge. However, the Bewley's argued that as the bungalow was inhabitable, non-residential rates should have applied instead.

The Bewley's took a good case to the First-Tier Tribunal. Apart from professional reports and other professional testimonials, the photographs they supplied about the state of the property at the time of purchase convinced the Tribunal to decide in their favour.

"HMRC was forced to reclassify the purchase as non-residential!"

This meant there was a lower SDLT liability so the purchase was not subject to the additional 3% higher rate charge usually applied to companies who buy residential property.

Tribunals are not binding, but HMRC has not appealed the decision; however, the takeaway here is that developers could now purchase derelict properties and pay a lower rate of Stamp Duty Land Tax.

However, each case is different so seek professional advice first.

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.