In a recently decided First Tier Tribunal case, P N Bewley Ltd escaped the higher rates of stamp duty land tax (SDLT) on the purchase of a dilapidated bungalow which it bought for demolition and redevelopment. This was on the basis that on the date of completion the building was not “suitable for use as a single dwelling”. The central heating system had been removed, some floorboards were missing and the presence of asbestos made a refurbishment unviable.
Implications for developers
A developer buying a derelict or semi derelict property can now refer to this case when self-assessing SDLT in making a decision as to whether the property should be subject to SDLT at the higher residential rates or at the non-residential rates. A developer might seek to use the argument that even if the building is “capable” of use as dwelling, the test of “suitability” requires a higher standard. The decision also suggests that even temporary factors can make a building unsuitable for use as a dwelling.
P N Bewley Ltd bought a bungalow called Rosemount at Bleadon Hill, Weston-super-Mare for £200,000. The bungalow had been constructed in about 1950 using a prefabricated timber frame and asbestos cement infill panels. It had been occupied by an elderly lady who had moved out by 2014 and it was being marketed as an “ideal refurbishment project” in September 2014. The property had been left empty and deteriorated since, with the heating system, copper pipes and floorboards having been removed.
A survey on behalf of a lender on 16 November 2016 said that there was a “derelict bungalow to be demolished” on the site. It recorded that water, drainage, electricity and gas were connected. A demolition survey of 13 December 2016 for the buyer found the asbestos-containing materials were in good condition but with a recommendation for urgent removal. The survey noted that the heating system had been removed.
There was a simultaneous exchange of contracts and completion on 24 January 2017. The buyer submitted a return and paid SDLT of £1,500.
The HMRC challenge
On 8 November 2017 HMRC opened an enquiry into the return and in due course made an amendment to it, increasing the SDLT payable from the £1,500 paid, to £7,500. This was on the basis that the bungalow was a dwelling, so the higher rates of SDLT (the 3% surcharge) applied to the purchase.
The statutory provisions
The focus of the case was on the meaning of “dwelling” as set out in paragraph 18 of Schedule 4ZA of Finance Act 2003. The relevant wording reads: “A building or part of a building counts as a dwelling if— (a) it is used or suitable for use as a single dwelling”.
The Tribunal said the sole issue to determine was whether the bungalow was, at the date of completion, suitable for use as a single dwelling. They considered that the legislation could have used other descriptions: e.g. whether the building was capable of being used as a dwelling. Here are some quotes from the judgment:
- “It seems to us that the legislation contemplates that there must be and is a class of buildings that might not meet the test and the likely class is those which are capable of being a dwelling but which are unsuitable for that purpose. The question then is where is the suitable/not suitable boundary.”
- “No doubt a passing tramp or group of squatters could have lived in the bungalow as it was on the date of purchase. But taking into account the state of the building … with radiators and pipework removed and with the presence of asbestos preventing any repairs or alterations that would not pose a risk to those carrying them out, we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.”
Outcome of the case
Having decided that the property was not a “dwelling” the Tribunal went on to consider whether SDLT should be charged at the standard residential rates or at non-residential rates. Oddly the buyer’s return had said the property was “residential” and they had paid SDLT of £1,500 at the standard residential rates. The Tribunal said: “given our decision that the building was not suitable to be used as a dwelling and the fact that it was not so used at the time of purchase, means that it was non-residential”.
The Tribunal reduced the SDLT to £1,000 on the basis that the property (as well as not being a dwelling) should be assessed on the non-residential rates.
In a more detailed analysis of the case and its implications, John Shallcross also looks at what the Tribunal decision might tell us about:
- Assessing whether a property is suitable for use as more than one dwellings (in the context of multiple dwellings relief).
- What HMRC guidance is relevant when looking at whether a property counts as mixed use, especially whether the land with it counts as the “garden and grounds” of the dwelling.
- The interpretation of provisions which are intended to prevent the avoidance of tax.
- The interaction between the definitions of “residential property” and “dwelling”.