Avoiding the Stamp Duty Land Tax surcharge

Posted on: March 4th, 2019

Associate Solicitor Ben Loosemore, in our Commercial Property team discusses a Stamp Duty case that could help property developers decide between demolition and repair.

A recent case has held that a dilapidated bungalow, which was unsuitable for use as a dwelling, did not attract the 3% Stamp Duty Land Tax surcharge on acquisitions by companies.

The case arose by HMRC’s decision to challenge a buyer’s assessment not to pay the 3% surcharge on its recent acquisition of a bungalow. The bungalow in question had been vacant for several years and was in a poor state of repair and condition, with the central heating system having been removed and various holes in its walls, ceilings and floors. Furthermore, the bungalow was found to have been constructed with white asbestos cement. All of this meant the safe renovation of the bungalow by the buyer was impossible and had to be demolished post-completion (to which the previous seller had obtained planning permission for).

With the bungalow being classed as unsuitable for use as a dwelling at the date of the buyer’s purchase, the First-tier Tax Tribunal held it could not be classed as a residential dwelling and therefore the stamp duty payable by the buyer should have been based on the non-residential property rate, which is actually a lower rate than the buyer had originally paid using the normal residential rate. The Tribunal added to its decision that it would be slow to impose the surcharge where avoidance schemes were not involved, especially if the intention was to renovate something back into use, given the purpose of the surcharge scheme was to support the housing market.

This case provides helpful guidance for developers on the suitability of dwellings when assessing stamp duty, especially when a developer is deciding whether to try and repair a dilapidated property or to demolish it and start from scratch.

Case: P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC)

For more information on property purchases and details on the Stamp Duty Land Tax surcharge, please contact Ben Loosemore or the Commercial Property team.