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Derelict Property Stamp Duty

Stamp Duty on Uninhabitable Property – PN Bewley v HMRC 2019

August 1st, 2019

The question of whether you have to pay additional Stamp Duty on a derelict property was recently explored in the case PN Bewley Ltd vs HMRC, 2019 UKFTT 0065 (TC). Our property solicitors have outlined some key facts about Stamp Duty and what they means in practice for those considering purchasing a derelict property: 

 

Do You Have to Pay Stamp Duty On A Second Property?

Since April 2016, the government has charged an additional 3% on top of the normal Stamp Duty Land Tax for residential properties for buyers who are buying a second house, or when the property is being bought by a non-individual (for example, a limited company).

The idea of this was to curb the growing trend of buying a second home, allowing more first-time buyers access to the market.

On the whole, the application of this has been fairly straight forward, as the rules were fairly clear cut. To be classified as a residential property the property must be used, or suitable for use, as a single dwelling, or is in the process of being constructed or adapted for the use as a dwelling.

 

Do You Have to Pay Additional Stamp Duty On A Derelict Property?

The rules lack clarity regarding derelict properties, as it is not always clear what constitutes a habitable dwelling. This exact topic was recently investigated by a First Tier Tribunal in PN Bewley Ltd v HMRC, 2019 UKFTT 0065 (TC).

It is worth noting that Stamp Duty law defines a dwelling as a property that is:

  • Used or suitable for use as a single dwelling or
  • In the process of being constructed or adapted for use as a dwelling

 

PN Bewley Ltd v HMRC, 2019 UKFTT 0065 (TC)

In this case PN Bewley Ltd bought a bungalow in Western-super-Mare. The bungalow had been abandoned around 3 years earlier and was now in a serious state of disrepair. The company planned to demolish the property and build a new dwelling on the land.

The building contained high levels of asbestos and had numerous holes in the floors and walls, whilst the heating system and some floorboards had been removed. Surveyors who attended the property listed the condition of the bungalow as “derelict”, whilst banks refused to issue a mortgage over the property.

When the company paid Stamp Duty, they applied the standard rate not paying the additional 3%. However, HMRC decided that the extra 3% was to be applied because the transaction complied with the rules attached to paying the additional rate:

  • The purchaser was a company (not an individual);
  • The transaction would result in the purchaser having a major interest in a single dwelling;
  • The amount paid was above £40,000; and
  • The property was not subject to a lease.

The company made the case that although the property was at one point a habitable dwelling, it was not habitable at the time the Stamp Duty was due and so should not attract the extra rate of tax.

 

Conclusion 

The judge considered the definitions of a dwelling as set out in Stamp Duty law:

  • Used or suitable for use as a single dwelling or
  • In the process of being constructed or adapted for use as a dwelling

With the first point in mind, the Judge found that although the property had some of the elements of a dwelling (a kitchen etc.), the property was not currently used as a dwelling and was currently uninhabitable. Although the judge went on to say that “no doubt a passing tramp or group of squatters could have lived in the bungalow” he concluded that “the bungalow was not suitable for use as a dwelling”.

The second point was also taken into consideration. As the property was bought as a derelict building and was not at that point being constructed or adapted for use as a dwelling, it would not fall under the second definition of a dwelling.

Therefore, as the property was found to not be a habitable dwelling when the property was bought nor currently being adapted for use, the judge ruled that the 3% additional Stamp Duty was not payable.

This ruling demonstrates the importance of careful planning when buying a derelict or empty property. By proving that the property is uninhabitable and not being adapted for use as a dwelling, you may be able to avoid paying the 3% Stamp Duty. Similarly, if you have recently bought a non-dwelling but have been charged the additional tax, you may be able to recover the tax back.

 

If you have questions regarding Stamp Duty on a derelict building, our experienced Residential Property solicitors and Commercial Property solicitors in Buckinghamshire can help you. Talk to one of our experts in Chesham, Amersham or Beaconsfield today on 01494 773377 or email hello@lennonssolicitors.co.uk

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