SDLT: What Amounts To ‘Habitable on Completion’?
What amounts to an unhabitable property, such that the buyer can claim non-residential rates of stamp duty land tax (SDLT)? This is an important question given HMRC’s recent win on the issue, the outcome of which meant the owners of a large detached house were liable for a big tax bill.
The tax tribunal has clarified the proper approach to ‘uninhabitable’ properties in the context of SDLT. Mr and Mrs Mudan bought the property in August 2019. In the years prior to their purchase, it had been lived in, however it was not in a good state of repair by the time of exchange of contracts.
The property had been empty for four or five months before completion and was probably vandalised after exchange. It was a mess, there was some damage and dangerous electrical disrepairs – and the family were only able to move in in May 2020, when enough work had been done to make it suitable.
Habitable or not?
At issue was whether, on the date of completion of the sale, the property was “suitable for use as a single dwelling”. HMRC said it was; the owners said it wasn’t – it was an issue with £100,000 at stake.
The owners argued that the property was not suitable for use as a dwelling as it lacked basic living facilities, therefore it was not residential property within the meaning of s116(1) the Finance Act 2003. They contended that the appropriate test was whether the property was suitable for occupation – and that it was only made suitable for use as a dwelling after electrical and other repairs workers were done.
HMRC argued that very serious, fundamental damage to the property would be needed to prevent it being suitable for use as a dwelling – that a property can be in despair yet still be suitable for use as a dwelling.
The FTT said a significant degree of disrepair is required in order for a property to be unsuitable for use as a dwelling. “’Suitable for use’ on the effective date does not mean suitable for immediate use and occupation,” the judge added.
He ruled that: “…a building which was recently used as a dwelling, has not in the interim been adapted for another use and is capable of being so used again…will count as a dwelling, even though it is not ready for immediate occupation, unless the reason/s why it is not ready for immediate occupation are so fundamental…that the work required to put these problems right goes beyond anything… repair, renovation or ‘fixing things’.”
The property here was deemed suitable for use as a dwelling at the date of completion and dismissed the owners’ appeal.
The scenario was significantly different to the 2019 case in Bewley which HMRC lost. In that case, the property was derelict, infused with asbestos and had to be demolished. It could in theory have been re-occupied but renovation was not feasible given the asbestos – the defects could not be cured and demolition was inevitable.
Where there is any doubt as to whether SDLT or other tax may be payable on a transaction, always seek specialist tax advice before taking action. What may be considered as unhabitable by the owner may be treated as habitable for SDLT purposes.
1Mudan & Anor v Revenue and Customs, 2023 UKFTT 317
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