Navigating Stamp Duty Land Tax (SDLT) When Buying Property in the UK

Acquiring property can be a significant financial undertaking, but for those willing to put in the work, purchasing derelict or uninhabitable properties can present an exciting opportunity. Beyond the potential for profit through renovation and resale, there is also the possibility to save considerably on Stamp Duty Land Tax (SDLT) for qualifying properties.

Criteria that might indicate a property is derelict include

  • Significant structural damage.
  • Major safety hazards like asbestos or severe mould.
  • A history of long-term abandonment.
  • Lack of basic utilities and essentials for living.
  • A status on council tax records indicating it’s uninhabitable.


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In a recent case (Bewley Limited v HMRC), the court ruled that higher rate Stamp duty, or 3% surcharge as it is sometimes known, is not payable on the purchase of a property that is uninhabitable and in such poor condition that it may only be used for development.

This might translate into significant cost savings if properties are purchased in a state of disrepair, it could be classed as inhabitable.

The Bewley Limited v HMRC case has set case law. The facts for the case are below.

  • The location was a vacant, run-down house and plot of land
  • It was purchased by a company that was founded to acquire it
  • The property was purchased for £200k
  • The idea was to tear it down and construct a new house on the same plot
  • The property, which was previously owned by a different party, had been granted prior permission for this.
  • The Bewleys bought the home after it had been abandoned for several years.
  • The property had boiler removed piping was removed
  • The house has asbestos which needed to be removed

How Can You Save on SDLT with a Derelict Property?

HMRC classifies properties for SDLT purposes based on their suitability as residences. An uninhabitable or abandoned property might not be deemed “suitable for use as a dwelling,” meaning non-residential rates could apply. This distinction can be financially advantageous for buyers:

  • Up to £150,000 – Zero SDLT
  • The next £100,000 – 2% SDLT
  • The remaining amount – 5% SDLT

This can mean significant savings for investors or developers who are buying properties to renovate.

What makes a property inhabitable or derelict?

The HMRC has a precise definition of a dwelling, but it is less so on what it does not consider one.

HMRC guidelines for a dwelling

Facilities

Sleeping Area –A home is expected to have enough space for sleeping. A sleeping area would generally be well-lit, feature power outlets, and include a window, although not always. It will usually be distinct from the ‘living room.’

Living Area – A home would be expected to have a place for day-to-day living, such as chairs, tables, cabinets, furnishings, and visitors. The room would generally include lighting, power points, heating, and a window.

Bathroom – It would be necessary to provide your own washing and toilet facilities, which might include a bath or shower, a toilet, and a sink.

Kitchen – A kitchen, for example, would be expected to have an area where food may be prepared and a location to do so (not necessarily in the same place). Because white goods like as a fridge or dishwasher are sometimes removed during a home sale, it isn’t necessary for a kitchen to include these items. There should be space and infrastructure available.

Independent Entrances

It’s critical that each home has its own access. This might be a separate entrance from the outside of the structure, or it may be an entry that is shared by several units in a building (such as flats). Common elements (such as hallways and stairwells) are usually present, which will be accessible via a lockable door to

The hallway or living space of the main house is generally not considered a common area by HMRC. An upstairs flat, for example, may appear to be self-sufficient in and of itself. However, if access to it is via the premises below, the lack of seclusion/privacy for the lower location is certain to indicate that there is

Privacy and interconnecting doors

A home’s property line must be kept separate from that of neighbouring properties. Adjacent dwellings may have interconnecting doors, although this is uncommon. Whether the door between the sections can be locked or is immediately capable of being secured on both sides is significant.

It’s often easier to think of a home as separate units when there are many interconnecting doors between them. The sort of door is also significant; for example, whether the door has adequate fireproofing and soundproofing to be considered suitable for separating the residences.

When is a home unfit for habitation?

When circumstances or safety concerns are so poor that it’s no longer reasonable for you to live there, a property is termed “unfit for human habitation.”

It’s possible that this is due to the poor state of affairs

  • affect your health seriously
  • put you at risk of physical harm or injury
  • mean you can’t make full use of your home

In the Bewley case, because the property was not able to be used as a dwelling at the date of the transaction, it was determined the property was inhabitable

The property in question was unfit for human habitation owing to the high quantities of asbestos present, and because the radiators and heating pipes had been removed. Asbestos prevented repairs and modifications from being made without posing risks, so the tribunal ruled that it was not fit for human habitation. As a result, the 3% SDLT surcharge didn’t apply.

Effective date

The test of whether the property is a home is carried out at the transaction’s effective date, which is usually the closing date. All that matters is whether it serves as or can be used as a dwelling at that time, or is being built or converted at that time; it does not matter if it has previously been used as a residence or may

More than modernisation

The test for inhabitability is stringent, and an uninhabitable property will lack essential amenities such as a functional bathroom and kitchen, as well as heating. A residence that requires updating and redecorating might still be liveable, even if it is a renovation project.

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