When is a house not a house - Stamp Duty Refund

A house is not always a house in SDLT

In a recent Stamp Duty Land Tax (SDLT) case, Lilly Woods highlights how the taxpayer was able to avoid the 3% additional dwelling surcharge. The 3% surcharge is applicable to purchasers of second homes and was introduced by former Chancellor of the Exchequer, George Osborne, to level the playing field between owner-occupiers and property investors.

The case of P N Bewley Limited v HMRC, decided by the First Tier Tribunal, involved the purchase of a bungalow that was not suitable for use as a dwelling and thus, did not attract the 3% surcharge. The bungalow had already had its heating system, pipes and floorboards removed and was found to be infested with asbestos, making safe renovation of the structure impossible. The tribunal ruled that the assessment of suitability for use as a dwelling must be made at the time of acquisition, and not based on its past or potential future use as a dwelling.

Change from residential to commercial SDLT

The bungalow was deemed a commercial development site instead of a dwelling, and thus, commercial rather than residential rates of SDLT applied without the 3% surcharge. The taxpayer received a refund after having paid the higher "residential" rate of duty.

For buyers, it is recommended to seek advice from lawyers, accountants, and/or surveyors before buying a site with a dilapidated house. If the existing building is found to be unsuitable for residential use, commercial rates of Stamp Duty may apply instead, leading to a tax saving. SDLT is a self-reported tax and record-keeping is important as HMRC can investigate taxpayers for six years. If there is a chance that the house is incapable of renovation, it is wise to keep building surveys, builders' reports, and date-stamped photographs to show the state and condition of the structure as evidence in case of an investigation.