3% Stamp surcharge only if property is suitable as dwelling on purchase?

The Times has highlighted a First-Tier tribunal ruling that overturned a decision to charge the additional 3% stamp duty for a second property, because it was not deemed suitable to be used as a dwelling on the date of purchase.

HMRC have to date applied the stamp duty surcharge for properties capable of being used as a dwelling in the future.

This could open a floodgate of claims against HMRC where investors have purchased properties of ‘uninhabitable’ condition and paid the 3% surcharge. What is not clear though is how much of a precedent this sets for the definition of a property suitable to be used as a dwelling.

HMRC have not yet confirmed if this decision will be appealed or future tax guidance changed. A spokesman for the HMRC said: “We are considering the judgement carefully.”

FIRST-TIER TRIBUNAL TAX CHAMBER Summary details of the decision: Click here to view full case notes

Decision Number: TC 06951
Appellant: P N Bewley Ltd
Respondent: The Commissioners for Her Majesty’s Revenue & Customs
Date Of Decision: 28/01/2019
Main Category: STAMP DUTY
Main Subcategory: Land tax

Notes: 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.

6.On 19 February 2018 the appellant appealed against the amendment to their return, repeating their view that the property was not habitable at the time of purchase and unviable as a renovation or refurbishment. Mr Lord gave his view of the matter and said that his decision had been referred for review (although he had not offered one, nor had the appellant requested one).

FACTS:

The existing building at Rosemount. From a notice of decision issued by North Somerset Council on 18 February 2016 to Mr R Cooke, the then freehold owner of Rosemount, we find that the description of Mr Cooke’s application for planning permission was:“Demolition of existing dwelling and erection of replacement building”. We find from the evidence of Mr Bewley that the bungalow at Rosemount had been occupied by an elderly lady but the she had moved out in 2014 or earlier, some time before their purchase. From a demolition survey issued on 13 December 2016 commissioned by the appellant and prepared by Philip Love of Enfield Group Ltd we find that:

(1)Asbestos-containing materials had been identified duringthe Demolition Survey. (2)The asbestos materials identified were in “good condition” with risk scores of 3 to 6 (out of 10). The recommendation for these materials was “urgent removal”. (3)“Building Notes” showed that the heating system had been removed and the remains of hessian insulation was still under the floor boards.

A letter of 19 February 2018 from the appellant to HMRC making its appeal said that while HMRC had researched the property (on the internet) and found that it was being marketed as an “ideal refurbishment project” in September 2014, the agent’s details did not contain any photographs of the condition of the property at the time and the property had been left empty and deteriorated since then, not being habitable due to the removal of the heating, copper pipes and floorboards.

Submissions

HMRC say:

(1) In Part 4 FA 2003 “dwelling” takes its ordinary meaning, and they say they cite the Oxford English Dictionary and the National Census

(2) That ordinary meaning does not require the property to be mortgageable, meet the better homes standard or to be of standard construction, and a dwelling does not change its nature because it falls into dilapidation.

3) The building came within the meaning of “residential property” for the purposes of s55 FA 2003 because it was not excluded by s116 FA 2003; the plot 7 was a residential plot in a residential area;and the intention was at all times for the plot to continue to be a residential plot comprising a dwelling and its grounds.

(4)A building under construction for use as a dwelling comes within the definition.

(5)The appellant used a code on the SDLT return which identified it as residential.

(6)The fact that no buyer could be found to refurbish it did not mean the property ceased to be a dwelling or was not capable of being renovated and occupied as a dwelling.

(7)The planning permission was indicative of the intention that the property was to remain a residential property. This “course of action” was a commercial decision, and does not indicate that the existing property was not capable of being utilised as a dwelling.

(8)The presence of asbestos in the existing building did not prevent its renovation or reoccupation, as the critical risk would come during demolition.

DECISION:

1. This was an appeal by P N Bewley Ltd (“the appellant”) against the amendment of a stamp duty land tax (“SDLT”) return made by them on 8 February 2017. The amendment was made by Mr Joel Lord, an officer of the respondents (“HMRC”) and was notified to the appellant in a letter of 26 January 2018 giving the officer’s conclusion of his enquiry into the return. The amendment increased the SDLT payable from £1,500 to £7,500.

Decision 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.

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