3pc stamp duty surcharge loophole discovered

The 3% stamp duty surcharge, which applies to purchases of additional dwellings, may not apply on properties unsuitable for immediate habitation.

This was the ruling made on 9 January this year by a First-tier Tax Tribunal held in Bristol which found in favour of appellants Paul and Nikky Bewley.

In 2017, the couple purchased a derelict, asbestos-ridden bungalow in Weston-super-Mare for £200,000. The property, which had been uninhabited for several years, already had planning permission to demolish the bungalow and construct a new building in its place.

The Bewleys contended that the higher rate of stamp duty (SDLT) was not due on the acquisition because the bungalow was not immediately fit to live in; further they said that the amount of asbestos in the property meant it was past the point where it could be refurbished.

Higher rates of residential stamp duty, commonly called the 3% surcharge, normally apply when purchasing property as a buy to let or second home, or when purchased by a corporate structure. SDLT applies in England and Northern Ireland.

HMRC disagreed with the couple’s claim, arguing that despite its dilapidated state, the bungalow could be renovated to provide a serviceable home.

At the tribunal, the judge sided with the Bewleys noting that the bungalow was not “suitable” for use as a dwelling when the stamp duty was due and therefore, the 3% surcharge did not apply. This meant that the couple were only liable for the standard SDLT rate at £1,500 rather than the higher rate at £7,500.

Commenting on this test case and the subsequent ruling, Simon Whittaker, CFO at Mortgages for Business said:

The judge’s findings were complex and certainly do not create a “carte blanche” to recover/not pay the SDLT surcharge on uninhabitable properties. I am sure that the presence of asbestos within the building formed a significant part of the judge’s thinking.

Clearly, the case may well encourage claims from buy to let landlords who paid the higher rates of SDLT when buying properties in need of renovation. It may also lead to an increase in landlords buying uninhabitable properties as way of avoiding the surcharge in future. Mr Whittaker said:

Going forward, I suspect that the number of applications of the judgment will be relatively small, but I am equally sure that the landlord community will pick up on this and all be looking to avoid the higher SDLT surcharge where possible. At the same time, HMRC will be doing everything it can to resist the wider user of this “get out” loophole.

Reclaiming overpaid SDLT

In light of the ruling, if you believe that you have overpaid stamp duty, we suggest that you:

Work out how much you could potentially reclaim.
We’ve recently updated our Residential Stamp Duty Calculator which you can use to work out how much of a refund you might be entitled to.

It should be noted that that SDLT relates to property purchased in England or Northern Ireland. In Scotland you pay Land and Buildings Transaction Tax (LBTT). In Wales you pay Land Transaction Tax (LTT).

Contact HMRC

Stamp Duty Land Tax queries

Tel: 0300 200 3510

Outside UK: +44 1726 209042

Opening times Monday to Friday: 8.30am to 5pm

Post: BT – Stamp Duty Land Tax, HM Revenue & Customs, BX19 1HD

Take legal advice to ascertain if you have a viable claim

Purchasing residential property unsuitable for immediate habitation

It is common for investors to use cash or bridging finance when buying properties which require renovation. This is because buy to let mortgages are normally only available on property that is in a suitable condition to let.

The good news is that there are a variety of products available to help investors fund these types of deals including: