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.
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 and mixed use land and property rates
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
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
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.
The full decision is here:
The existing VOA Guidance relating to Council Tax Liability for Properties in Disrepair or Derelict is here:
Some notes from a 2018 meeting of Tax Authorities on the meaning of "residential property" subject are here:
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.
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?