SDLT Case Law Briefing

Although not going into great detail, the case examines when a former dwelling ceases to be capable of use as a dwelling and therefore becomes non-residential property for SDLT purposes. Using the non-residential SDLT rates as opposed to the residential rates can, in certain circumstances, give rise to big savings of SDLT.

Facts

The taxpayer – PN Bewley Ltd (PNBL) appealed against a ruling from HMRC that the additional 3% SDLT charge applied to the purchase of a bungalow by it. PNBL claimed that the standard SDLT rates applicable to residential property should have applied to its purchase and therefore, its SDLT liability should have been £1,500 and not £7,500 which HMRC had assessed.

PNBL acquired the bungalow from a Mr Cooke in January 2017. The bungalow had not been occupied in Mr Cooke’s ownership and was last occupied in 2014 or earlier when the seller of the bungalow to Mr Cooke had moved out.

Mr Cooke had planning permission to demolish the bungalow and to construct a new dwelling on the site.

When PNBL acquired the bungalow it was in poor condition. A disruptive fully intrusive survey of it had been undertaken which involved destructive application techniques such as breaking into floors, through walls, voids and ceilings. Asbestos had been found at the bungalow and although it was still connected to water, drainage, electricity and gas, the heating system had been removed.

Decision

The FTT allowed PNBL’s appeal.

The FTT considered that the sole issue for it to consider was whether the bungalow was, at the date of completion of the purchase by PNBL, suitable for use as a dwelling.

The FTT confirmed that anything to be done to the bungalow after it was purchased by PNBL was irrelevant.

After considering the interpretation of “dwelling” in other tax legislation and case law, the FTT concluded that the bungalow was not suitable for use as a dwelling. The FTT noted that at the date of completion, the bungalow did not include the minimum facilities for it to be a home and therefore, it could not be a dwelling.

The FTT concluded that the bungalow was a non-residential property for SDLT purposes and therefore PNBL’s SDLT liability was reduced to £1,000.

The definition of “dwelling” for SDLT purposes and the suitability of a property for use as a dwelling is something that practitioners and HMRC continue to wrangle with. There is little SDLT case law on these issues and the guidance from HMRC is not particularly clear. This case is still subject to appeal and with the additional 3% SDLT proving very costly on many transactions, it is likely to be the subject of many future disputes with HMRC and will no doubt come before the courts again soon.

Getting the SDLT wrong on property development projects can often seriously impact the profitability of the project. We can assist you to make sure you get it right. Get in touch with us using the details below.