How an uninhabitable property could save you thousands on Stamp Duty

Posted 28th July 2022 by sdlt-admin

Have you purchased UK property that you paid Stamp Duty Land Tax on? See if you are eligible for a refund from HMRC on overpaid SDLT

We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty.

Buying additional residential properties, whether for a second home or renting out, has become an expensive business, thanks to the introduction of the Higher Rate on Additional Dwellings, aka the 3% surcharge, introduced in 2016.

The charge, added to each ‘slice’ of a property’s Stamp Duty liability, can make the purchase of additional property prohibitively expensive to those who are either looking for a small holiday home, investing in a BTL to supplement pension income, or even looking to purchase a property for children at university.

Read: How do I get a Stamp Duty Refund from HMRC?

Much confusion surrounded the introduction of the surcharge in the first place, and even now many buyers and their advisers struggle to know exactly when and if the charge is payable. Some of the discussion centred around dwellings, and what constitutes a separate dwelling for the purposes of this legislation. Granny Annexes in particular were an early focus. Thanks to this, despite a lack in the legislation itself, there is now a lot of clear guidance from HMRC as to the precise definition of a dwelling.

What there was less guidance on, until 2019, was the definition of what makes a property uninhabitable. This is relevant because the 2019 First Tier Tribunal case of Bewley v HMRC determined that where a property is uninhabitable at the point of purchase, the 3% surcharge is not payable.

It should be noted that there were particular factors at play in the Bewley case, namely that the property was purchased as derelict, bought by a company founded to acquire it with the intention of demolishing it and building a new property o the plot. Furthermore, the property had asbestos which needed to be cleared and had had significant portions of the heating system removed.

However, whereas the FTT does not set binding precedent, the reasoning given in the ruling (yet to be challenged by HMRC) does provide us with a roadmap of sorts as to the particular factors which are relevant in defining a property as uninhabitable for these purposes.

Importantly, the property must be no longer reasonable to live in – perhaps factors exist which would threaten the health and/or wellbeing of any occupier (such as the asbestos in the Bewley case) or which prevent the full use of the property as a home. It is not enough for a property to simply be in need of redecoration or refurbishment – the test is stringent and requires that the property lack basic amenities such as functional plumbing or heating or a kitchen or bathroom.

Read: £10 billion overpaid Stamp Duty on SSAS and SIPP pensions

From an investment point of view, this potentially offers a ‘double dip’ opportunity – if you are looking to acquire a rental property, buying one in a significantly dilapidated state may allow you to pick it up at a significantly cheaper price than might otherwise have been the case and to save thousands of pounds in Stamp Duty liability as well.

Those savings can be channeled towards renovation work which may not be that much more expensive in the long run than standard redecoration and making fit for rental that you may have to undertake with a normal property, or the premium you might pay for a new build property.

Various factors are at play of course, and this may not be suitable for those looking to invest in a property for university-going children, but in the right circumstances, going for a true ‘fixer-upper’ could pay you dividends going forward.

Have you purchased UK property that you paid Stamp Duty Land Yax on? See if you are eligible for a refund from HMRC on overpaid SDLT

We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty.

Contact us today

SDLT Refunds is a division of Cornerstone Tax.
You can call us on 03333 050954 or email us at newbusiness@ctatax.uk.com