The First-tier Tribunal has rejected HMRC's assertion that the 3% SDLT surcharge on purchases of residential property applied to a company's purchase of a bungalow acquired for demolition and redevelopment.

 

In PN Bewley Ltd v HMRC TC06951 it was ruled that a derelict bungalow was not suitable to use as a dwelling, so it could not be defined as a residential property for the purposes of SDLT. HMRC was required to consider the state of the property when it was acquired, not whether it could be renovated to be used as a dwelling at a later date.

 

In 2017 PN Bewley Limited had purchased a bungalow on a plot of land in Weston-super-Mare for £200,000. The bungalow had been empty for three years and the heating system and floorboards had been removed. A demolition survey in 2016 had found asbestos and recommended its “urgent removal”. HMRC argued that the bungalow was a dwelling regardless of its dilapidation and could be brought back into use via renovation so the higher rate of SDLT should apply.

 

PN Bewley Ltd appealed the higher rate of SDLT (taking SDLT from £1,500 to £7,500) on the basis that the property was not “habitable at the time of purchase and unviable as a renovation or refurbishment”, arguing that SDLT due should be based upon the non-residential rate of SDLT on the property.

 

The First-tier Tribunal agreed, noting that the test is not whether a building is "capable" of being used as a dwelling following renovation, but whether it "is used, or is suitable for use as a dwelling" at the point at which the SDLT charge arises. On the basis of photographs taken of the bungalow and site, it was evident that the building did not meet these criteria and the Bewleys’ SDLT bill was reduced. Developers purchasing genuinely derelict residential property can now consider whether it would be appropriate to self-assess SDLT at the significantly lower non-residential rates.

 

This ruling will have also implications for purchases in Wales and Scotland, as LBTT and LTT have similar supplementary rates for purchases of residential properties by companies. 

Note that the additional dwelling supplement in Scotland increased from 3% to 4% on 25 January 2019. Find-out more here.