The case of Bewley vs HMRC (2019) has recently been determined in favour of developers, thereby saving Stamp Duty Land Tax (SDLT).
The property in question was a bungalow and a plot of land which was purchased by Mr Bewley through a company. The bungalow benefitted from planning permission for demolition of the existing dwelling and replacement with a new dwelling.
When you buy a second residential property as an individual or any residential property as a company, you pay an extra 3% in stamp duty. However, Mr and Mrs Bewley sent off a tax return on the basis that the “residential” property had no heating, no boiler and asbestos was everywhere. The purchasers demolished the property, and built a new home.
On the basis of their return, the couple would have been charged £1,500 stamp duty, being 2% on the amount in excess of £125,000. However, HMRC increased the stamp duty from £1,500 to £7,500, on the basis that they believed the incorrect tax coding had been used. The correct tax code should have been for a property which “must be used for a purchase by a company purchasing any residential property even if it is the only such property owned”. HMRC said this was because the property was capable of being used as a residential property in the future.
The Bewleys argued that the property was not a dwelling and produced evidence to show that it was in such a poor state, it could not be deemed suitable for a dwelling or residential property at all.
The Tribunal found:
- The building was not suitable to be used as a dwelling;
- It was not in fact used as a dwelling at the time of the purchase; and
- Therefore it was non-residential.
This meant that not only was HMRC’s assessment of stamp duty at £7,500 overturned, but the Bewley’s original assessment was reduced from £1,500 to £1,000 as non-residential property.
This makes it clear that for the purposes of the higher 3% rates of SDLT the test is whether the building is used or is suitable for use as a dwelling at the point of purchase. If it is not, then the higher rates of SDLT cannot apply.
From a practical point of view, therefore, if a developer is to argue that the building is not fit for use, then it must retain such evidence as it has at the time of the purchase to show that it was not fit for use as a dwelling.
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