From April 2016 onwards, those purchasing a second home as an investment property or holiday home have been liable for a higher rate of SDLT at 3%. In the recent Tribunal case of P N Bewley v Her Majesty’s Revenue and Customs (HMRC) 2019 UK FTT 65, however, Mr and Mrs Bewley were exempted from the higher rate because the property was not habitable at the point of completion.
The property, a bungalow in Bristol, had been constructed out of a timber frame and asbestos cement infill parcels. A survey carried out by the claimants concluded that the asbestos was to be removed as a matter of urgency. Another survey carried out on behalf of the lender stated that the derelict property should be demolished. The heating system, copper pipes and a proportion of the floorboards had already been removed from the property. Mr and Mrs Bewley demolished and rebuilt the property on the same site. They paid the lower rate of SDLT at the point of completion, but this was contested by HMRC due to the fact the bungalow was a second property.
The Tribunal confirmed that Mr and Mrs Bewley were right to have paid the lower rate of SDLT on the basis that the bungalow was not habitable at the time the transaction completed. ‘Habitable’ is defined by The Housing Act 1957 as one with a functioning toilet, bathing and cooking facilities all of which are available to the Occupier. Heating is not required to deem a property habitable. In addition to this, the property must be used as a ‘dwelling’ as per Part 18 Schedule 4ZA of the Finance Act 2003. The Tribunal considered that in order for a property to be a suitable ‘dwelling’ it must, at the very least, have facilities for personal hygiene, food and drink consumption, storage for personal belongings and a place to sleep. Relying on a report from a Chartered Surveyor who concluded that the property was suitable for human habitation and the fact that the bungalow was not under construction at the time of completion, the Tribunal held Mr and Mrs Bewley need only pay the lower rate of SDLT.
What next?
It might be tempting to use the floodgates argument in that this decision might lead to many others attempting to rely on this case to avoid paying the higher rate of SDLT when purchasing second homes. It is worth noting that Mr and Mrs Bewley’s situation was very fact specific. Crucial to their success was the fact that they carefully documented the condition of the property at the time of the purchase with thorough photographs. Investors and homeowners wishing to claim a tax rebate or submit a tax return for the lower rate should consider if the time, cost and potential penalties for submitting an incorrect return are worth the possible tax savings.
At any rate, it is highly likely that HMRC will challenge this decision and seek an appeal so it is possible that it will be reversed.
