In the wake of a recent ruling regarding stamp duty rates on second homes, UK landlords have been urged to take a look at their property purchases to see if they can claim a stamp duty rebate.
In the recent landmark case of P N Bewley Ltd vs. HMRC, a judge ruled that properties which are not habitable at the time of completion do not constitute a ‘dwelling’, and are thus not liable for the three per cent stamp duty surcharge for second properties, as per the Finance Act 2003.
This update to case law means that other landlords and homeowners who have paid stamp duty on uninhabitable properties may be able to reclaim the tax, if it is found that they have overpaid in error.
What makes a property residential?
HMRC states that stamp duty only needs to be paid on a property which is residential. This means that, for SDLT purposes, a residential property is one which is:
- Used as a dwelling
- Could be used as a dwelling
- Is in the process of being constructed or adapted into a dwelling
One of the problems with this is that there is very little to define what may or may not constitute a ‘dwelling’, and under which circumstances a property may be considered uninhabitable.
P N Bewley Decision
In the case of P N Bewley, the property in question was a derelict bungalow in Weston-Super-Mare, which was purchased by a limited company owned by Paul and Nikki Bewley with a view to demolish the existing structure and construct a new build on the plot of land that came with it. The purchase was made with planning permission for the demolition and construction already granted.
When purchased, the property had already been sitting empty for a number of years and was severely dilapidated, with holes in the walls, ceilings and floors. The central heating system had been removed and the building contained white asbestos which was in urgent need of removal.
The Bewleys intended to pay the lower amount of SDLT, arguing that the property was not suitable for occupation. However, HMRC disagreed and argued that the property could be renovated to provide a serviceable home, changing the Bewley’s tax return to reflect the higher amount of stamp duty.
The couple refused to accept this decision and took the case to the First Tier Tax Tribunal, where judge Richard Thomas examined their arguments within the context of existing statute and case law. Referring to the guidelines set out in the law that require a property to be habitable at the point SDLT becomes payable, the judge, after examining photographs of the building, ruled that this was clearly not the case with the Bewley property.
The tribunal ruled that:
- The word ‘dwelling’ does not have a specific definition for tax purposes and simply refers to a place to live.
- With this in mind, a dwelling should be characterised by the features which make it suitable for private accommodation. This would include a full kitchen and bathroom, and private access to the property.
- A dwelling must also be suitable for use as a live-in residence, meaning that it should be in sound physical order so that a buyer or tenant could move in right away. Photos, plans and surveyors’ reports could be used to determine this.
- The dwelling ‘test’ should be performed at the time of completion to decide if the buyer needs to pay the higher rate of stamp duty for a dwelling as opposed to an uninhabitable property.
What does this mean for buyers?
In light of the Bewley ruling, buyers need to take a closer look at the properties they have bought or are intending to buy in order to be certain of whether or not a property is wholly residential. If a property is entirely uninhabitable before stamp duty becomes payable, the buyer may be able to get the non-residential (or mixed use) rates of tax, which are applied at a far lower percentage.
Buyers may also want to consider how many properties they are purchasing when thinking about tax reliefs. A property which is wholly residential but comprised of more than one dwelling may not be eligible for stamp duty relief, but may be eligible for multiple dwellings relief instead, which could provide even more significant savings.
Most importantly, this tribunal has brought to light how closely HMRC are enthusiastically chasing tax revenue in the current climate, and how far they are willing to take a case to get what they believe is the right amount of tax, even if the underpayment (as in this case) does not amount to very much. For buyers who are unsure what rate of tax they should be paying, taking a case like this to court and losing could prove to be an expensive mistake.
For this reason, it is worth studying the law to ensure that any property you are buying fits neatly into the legislation as it stands now. Getting expert advice from a property specialist is the best way to do this, as they aware of the laws and how they are applied in practice by HMRC.
Other ways to get a rebate on stamp duty
You will have to pay the higher rate of stamp duty if you buy one home before you have managed to sell your previous home. As you will technically own two properties for a time, and by law you are required to pay the higher charge.
However, if you sell or give away your original main property within 3 years of buying your new home, you should be able to apply for a refund for the additional SDLT charge. You can speak to a solicitor about this, and they will be able to advise you on how to go about getting a rebate.
Talk to us
The recent vilification and subsequent penalisation of landlords through the tax system has certainly been painful for those affected. However hopefully this case marks the start of the reversal of this trend and is certainly a welcome development.
The specialists at RITA4Rent can advise you on your property portfolio, and can highlight relevant purchases where this case may apply in your favour, in readiness of speaking with your solicitor should you have a case.
For any of your property tax needs, please do not hesitate to contact RITA4Rent today on Freephone 0800 1 22 33 57 or via email by clicking here.
- We recommend all professional landlords protect themselves and their business by gaining access to advice, information and education from a landlord association. Become a member of the Residential Landlords Association (RLA) today and join over 35,000 other landlords, just like you. Click here to become a member of the RLA today.
- Given the sheer level of tax changes in recent years, it might also be a good time to review your mortgage position. Please note we are not authorised to provide advice or arrange mortgages but we can introduce you to a firm who can. If you wish to discuss your policies or receive advice then please contact us and we will pass your details onto RLA Mortgages who are authorised and specialise within this area.
- propertychecklists.co.uk has been set up by Which? property author Kate Faulkner and offers checklists on everything from how to choose a buy to let through to securing tenants, letting them go and day-to-day management. If you have a question and want an independent answer, they will also help with that too – all free of charge!
- Finally, it can also be a great help communicating with like-minded landlords, learning about their experiences, and having a chat. You can do just that by heading over to Property Tribes today, the busiest forum for private and residential landlords in the UK.