In Bewley v HMRC (2019) the First-tier Tax Tribunal (“FTT”) ruled that a bungalow and a plot of land (with planning permission (“PP”) for demolition of existing dwelling and replacement with new dwelling) was not suitable for use as a residential dwelling at the effective date of the transaction thus, the higher 3% rates of Stamp Duty Land Tax (“SDLT”) did not apply. This saved the developer a considerable amount on the upfront costs of the residential development.
Despite believing the transaction was non-residential, on the SDLT return form, Bewley defined the transaction as residential thus, HMRC launched a review and concluded that a further £6000 of SDLT was due as the premises should be deemed residential. Bewley appealed to the FTT.
Bewley argued that the property was not a dwelling as the property:
- had not been occupied since 2014 (with all heating, copper pipes and floorboard removed at that date) and had been marketed without photos;
- had undergone a demolition survey (2016) which confirmed the heating system had been removed and asbestos was present which needed to be removed (to remove, the property needed to be virtually dismantled, leaving it unhabitable); and
- has a mortgage survey (2016) describing the property as a derelict bungalow, in poor internal condition and in need of demolition thus, not mortgageable.
HMRC opined that the property:
- was a residential dwelling as it could either be used/was suitable for use as a single dwelling; or it would be once in the process of being constructed/adapted for such use ;
- did not have to be without dilapidations, to be a dwelling by its nature and just because a buyer was unwilling to refurbish a property, did not deem it non-residential;
- is not required to be mortgageable, to be a residential dwelling;
- was residential, in a residential area and was always intended to be residential;
- was deemed residential in the SDLT return;
- has the benefit of a PP which was for continued residential use; and
- had asbestos but that did not prevent re-occupation or renovation.
FTT confirmed as follows:
- the effective date of the transaction is the key date therefore, the impact of the refurbishment/demolition works on the residential status were irrelevant; and
- the “use test” is clear as either a property is used as a dwelling or it is not thus, it should not be considered whether the property it suitable for, capable of or designed to be used for residential use.
The FTT agreed with HMRC that the meaning of a dwelling does not require the property to be mortgageable; the dilapidations of a dwelling does not necessarily prevent it from being a dwelling; asbestos does not prevent reoccupation (but this was not part of the test for if the property was a dwelling); and a building under construction for use as a dwelling comes within the definition (this point was not relevant to Bewley as no such building was under construction at the effective date of the transaction). HMRC’s other points were all deemed incorrect or irrelevant by FTT.
The decision makes it clear that for the purposes of the higher 3% rates of SDLT the test is whether the building is used as or is suitable for use as a dwelling. When a building was originally built as a dwelling, if it is not suitable for use as a dwelling at the effective date of the transaction the residential rates (including the higher 3% rates of SDLT) cannot apply.
This case serves to remind practitioners and their clients of the importance of keeping evidence of the condition of a building at the effective date of the transaction. The FTT said that it was ‘immensely helped’ in its decision by reviewing original photos (albeit they were captured on a mobile phone).
As always, it is advisable to seek specialist tax and legal advice when considering any transaction and Ellisons Solicitors are able to assist with all commercial and residential purchases and sales. Call and speak to one of our specialists today.
Reference: FA 2003, Sch 4ZA, para 18