Saving Stamp Duty on Derelict Properties

This is potentially relevant to Buildhub users who have purchased, or are purchasing, existing properties (derelict or habitable), in order to repair or replace them. It concerns whether you pay the Residential Rates of Stamp Duty Land Tax, or the Non-Residential Rates of Stamp Duty Land Tax (which are lower).

 

(Gird your loins - slightly - for this, and get a cup of whisky plus a couple of Jaffa Cakes.)

 

This post is General Information only, and does *not* constitute advice in any form.

 

It is about a Court Ruling from January 2019 in the First Tier Tribunal Tax Chamber called HMRC vs Bewley, which changed the Liability for Stamp Duty Land Tax in England in one case where the property was found to have been unsuitable for use as a dwelling, and so the (lower) non-residential rate should have been applied. This level of Court is not automatically precedent-forming though decisions may 'be taken into account' by other Courts; the Upper Tribunal, where a case goes when Appealed from the First Tier Tribunal, is precedent-setting.

 

For two groups of Build Hubbers, it could affect people who buy buildings on plots to demolish, or perhaps people who want to pass a plot or  building-on-a-plot on for the purposes of developing more than one dwelling. There is potential, for example, for the vendor to sell the property in an uninhabitable state by doing various things, and the price varying to allow for the lower amount of Stamp Duty which may be due, or perhaps for an indemnity against a higher tax bill considered (if such an agreement is lawful). The status of a building would be changed by an application to the Valuation Office Agency (VOA).

 

On Buildhub we have had conversations about what makes a property uninhabitable in connection with liability for Council Tax, for example the absence of a potable water supply. This conversation is similar, and eventually will be about what prevents an empty or derelict property from being suitable for use as a dwelling.

 

I am not launching into my own discussion of that, beyond noting that factors that may end up coming into the future guidance which may eventually be published by the Tax Authorities if necessary may include things such as "is there a kitchen", "is there a bathroom" (both of which affect 'mortgageability'), and potentially "does it have planning permission yet". I will simply post the summaries of the Ruling.

 

What about the potential impact?

 

The difference between the Residential rate of SDLT can be substantial. The potential savings for people buying expensive plots look to be quite tasty. Note - these rates quoted below are basic, partial information for illustration; there are exemptions and special cases by the bucketload - and you do need to check properly.

 

Residential SDLT

 

Source :https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

 

Quote

 

You usually pay Stamp Duty Land Tax (SDLT) on increasing portions of the property price above £125,000 when you buy residential property, for example a house or flat.
 

Property or lease premium or transfer value SDLT rate
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2%
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%

 

 

 

Non-Residential SDLT

 

Source: https://www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-use-rates

 

Quote

 

Non-residential and mixed use land and property rates

 

Non-residential property includes:

commercial property, for example shops or offices

agricultural land

forests

any other land or property which is not used as a residence

6 or more residential properties bought in a single transaction

 

Property or lease premium or transfer value SDLT rate
Up to £150,000 Zero
The next £100,000 (the portion from £150,001 to £250,000) 2%
The remaining amount (the portion above £250,000) 5%

 

 

 

HMRC vs Bewley Summary

 

Quote

Appeal number: TC/2018/03175

 

STAMP DUTY LAND TAX – bungalow and plot of land acquired with planning permission for demolition and building of new dwelling on site – whether higher rates of SDLT in Schedule 4ZA FA 2003 apply – whether bungalow building “suitable for use” as a dwelling on date of transaction – held not so suitable – self-assessment as amended by HMRC reduced to remove higher rate charge and to reflect non-residential rate.

 

FIRST-TIER TRIBUNAL TAX CHAMBER

 

P N BEWLEY LTD Appellant

THE COMMISSIONERS FOR HER MAJESTY’S Respondents

 

REVENUE & CUSTOMS TRIBUNAL:

 

JUDGE RICHARD THOMAS WILLIAM HAARER

 

Sitting in public at Civil & Family Justice Centre, Redcliff St, Bristol on

 

9 January 2019

 

and

 

Quote

Decision

 

107. And so our decision under paragraph 42(2)(a) Schedule 10 FA 2003 is that the appellant is overcharged by a self-assessment (both as originally made and as amended by HMRC) and we reduce the self-assessment to £1,000.

 

Resources:

 

The full decision is here:

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10915/TC06951.pdf

 

The existing VOA Guidance relating to Council Tax Liability for Properties in Disrepair or Derelict is here:

https://www.gov.uk/government/publications/council-tax-domestic-properties-in-disrepair-or-derelict/council-tax-domestic-properties-which-are-in-disrepair-or-are-derelict

 

Some notes from a 2018 meeting of Tax Authorities on the meaning of "residential property" subject are here:

https://www.tax.org.uk/sites/default/files/SDLT Section 116 FA 2003 meeting 11 June 2018 summary points FINAL.pdf (document itself)

 

Winding Up

 

It would be useful to have some of the Buildhub hive mind on this, especially as this is not an area of specialist knowledge for me. We have discussed this issue wrt Council Tax, and mainly at the end of the build, for example in this thread by @vivienz. But we have not - that I am aware of - considered so carefully unsuitability for use as a dwelling at the start, and with respect to Stamp Duty.

 

Another category I am not aware that we have discussed is Stamp Duty liability on properties gifted.

 

In general this is one to be aware of, and then probably discuss with advisers. The difference in SDLT liability in the case discussed was £6k.

 

I have discussed this wrt England (and probably Wales if they have not changed that bit yet !), but the "Notes form a 2018 Meeting" link above shows attendance by Tax Authorities UK-wide.

 

For example:

 

Has anyone successfully applied to have derelict properties defined as unsuitable for habitation and removed from the 'register' at the VOA, and subsequently reduced their SDLT liability on that basis?

Has it been done with kitchen and bathroom removal, rather than roofs and windows?

 



9 Comments


Recommended Comments

Hummm, interesting. All I can add is .. be careful. If buying a run down property you don't want to argue too hard that it's totally derelict. Because if planners consider that use as a dwelling has been abandoned it could make it much harder to get planning permission to replace it. 

 

That said, it is quite hard for a building to loose its status as a dwelling but that happened to a farmhouse a few miles away from us.

Share this comment


Link to comment

I have purchased a bungalow that has no power due to dangerous wiring, water turned off due to holes in roof letting bird poo into water tank, no kitchen or bathroom facilities at all. The VOA were sent a pack of photos and my statement of fact as we're the CT office. Both replied saying that the property was capable of offering beneficial habitation and on that basis refused to remove the liability for council tax or VOA register. I tried, I do feel that there is a niche area that self builders occupy that all the red tape cannot deal with in a fair manner. So now left with full CT on the property until demolished. 

Share this comment


Link to comment

@EverHopefull the post is about SDLT, not council tax.  To get the property removed from the council tax register you may need to remove the roof as a minimum and perhaps demolish internal walls and remove and board over doors and windows.  They don't want people owning properties that can easily be made habitable and not paying council tax.

 

@Ferdinand the SDLT rates seem quite similar - so much so I am surprised there has been a court case.  It looks like the property would have to be in excess of £1M to bother.

Share this comment


Link to comment

Sure, it was also non eligible for reduced stamp duty even tho marketed and sold as a development plot. Always worth a punt these things. As they say if you don't ask you don't get. Will demolish once planning approval obtained and just take it in the "self build" stride! 

Share this comment


Link to comment
43 minutes ago, Mr Punter said:

@EverHopefull the post is about SDLT, not council tax.  To get the property removed from the council tax register you may need to remove the roof as a minimum and perhaps demolish internal walls and remove and board over doors and windows.  They don't want people owning properties that can easily be made habitable and not paying council tax.

 

@Ferdinand the SDLT rates seem quite similar - so much so I am surprised there has been a court case.  It looks like the property would have to be in excess of £1M to bother.

 

That is interesting. I wonder if other factors are at play?

 

Perhaps the thing they are avoiding is the 3% Supplementary SDLT for a second Property?

Share this comment


Link to comment
44 minutes ago, Mr Punter said:

@EverHopefull the post is about SDLT, not council tax.  To get the property removed from the council tax register you may need to remove the roof as a minimum and perhaps demolish internal walls and remove and board over doors and windows.  They don't want people owning properties that can easily be made habitable and not paying council tax.

 

@Ferdinand the SDLT rates seem quite similar - so much so I am surprised there has been a court case.  It looks like the property would have to be in excess of £1M to bother.

It's not the rates surely it's to do with HRAD on additional properties. I guess it's not applicable to non resi purchases?

Share this comment


Link to comment
58 minutes ago, Oz07 said:

Can we have a summary of why the property was classed as non resi @Ferdinand

 

it is actually quite spread out, but the test is ‘suitable for use as a dwelling’ on te day of purchase, for residential SDLT to be applied, and it was a 150k transaction including the 3%, I think. The HMRC came up with lots of tangents.

 

The applicant made this case, and the place had had an intrusive asbestos survey, and white asbestos was exposed:

 

Quote

35. In their appeal to HMRC the appellants grounds of appeal were that the property was not habitable and refurbishment was not viable because of the asbestos content.


36. In their notification to the Tribunal they repeated this and said that they had provided evidence that the property was not capable of being used as a dwelling. They pointed to the valuation report and the demolition survey report, and added that the property had no form of heating, old electrics, the kitchen and bathroom were dated and the building was in poor condition in general. Any renovation would have been extensive and would have disturbed the asbestos. It would not comply with the Decent Homes Standard and would be unmortgageable because of the prefabricated construction method with timber frame and asbestos cement infill panels.

 

It s a good read.

 

Expect ‘suitable for use’ to change to ‘capable of being used’, to try and catch more in the net.

Edited by Ferdinand

Share this comment


Link to comment
3 hours ago, Temp said:

Hummm, interesting. All I can add is .. be careful. If buying a run down property you don't want to argue too hard that it's totally derelict. Because if planners consider that use as a dwelling has been abandoned it could make it much harder to get planning permission to replace it. 

 

That said, it is quite hard for a building to loose its status as a dwelling but that happened to a farmhouse a few miles away from us.

 

I think the one in the case already had Planning.

 

And I think that conceptually the SDLT thing would come under ‘matters not relevant’, as do eg neighbour disputes about boundaries.

Share this comment


Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now