In case of Mudan and another v Revenue and Customs Commissioners [2024], the taxpayer appealed against a ruling of the First-tier Tribunal (FTT) that property acquired by him was residential for Stamp Duty Land Tax (SDLT) purposes.
The taxpayer acquired a property on which there was a building in a 'relatively bad state' which had formerly been a dwelling. Initially he paid SDLT of £177,000 but later sought to reclaim £99,750 on the basis that the property was non-residential for SDLT purposes.
Despite the property requiring (a) rewiring; (b) the installation of a new boiler together with new water pumps and gas pipes; (c) a new roof over the boiler house to stop rainwater entering; (d) the repair of broken windows to make the property secure; (e) plumbing work to stop the basement from flooding; and (f) the removal of a large amount of waste from the house and garden which required several skips, the FTT concluded that the property was a suitable for use as a dwelling and was therefore, residential for SDLT purposes.
The relevant statutory test for determining whether the building in this case was residential for SDLT purposes was whether 'it is used or suitable for use as a single dwelling' at the effective date of its purchase (being completion of the purchase).
In the Upper Tribunal (UT), counsel for the taxpayer tried to argue that 'use' meant 'occupation' but that this was modified by a de minimis principle which meant that a building would still be suitable for use as a dwelling at the relevant effective date if minor works required to be undertaken delayed occupation by a 'few days'. The property in this case was acquired in August 2019 but it wasn't until May 2020 when the taxpayer considered enough work had been done to it to make it suitable for a young family. The taxpayer said this meant the building was not suitable for use as a dwelling when it was purchased and therefore, the non-residential rates should apply to the SDLT payable. The UT flatly rejected this argument.
The UT said that the following points should be considered in determining the impact of works needed to a building when looking at its suitability for use as a dwelling.
- The starting point is to establish whether the building has previously been used as a dwelling. The UT said that this was 'a highly relevant factor in the evaluation of suitability'. Actual use as a dwelling is a very strong indication that the building has possessed the fundamental characteristics of a dwelling and has previously been suitable for use as a dwelling. Previous use as a dwelling does not mean that a building remains suitable for use as a dwelling regardless of what happens to the building.
- At the effective date of the relevant transaction, an assessment must be made of the extent to which the relevant building has the fundamental characteristics of a dwelling, including the extent to which it is structurally sound.
- The necessary works should be identified and their impact on suitability for use should be considered collectively. A distinction must be drawn between works needed to render a building habitable and works to be carried out to make the property “a pleasant place to live”. The latter do not affect suitability for use as a dwelling.
- An assessment should be made of whether the defects in the building which require works are capable of remedy and that assessment should take into account whether the works would be so dangerous or hazardous as to prejudice their viability. If they would, then the building is unlikely to be (or remain) suitable for use as a dwelling. The assessment should also take into account whether the works could be carried out without prejudicing the structural integrity of the building and if they could not, the building is unlikely to be suitable for use as a dwelling.
- If occupation at the effective date would be unsafe or dangerous to some degree (for instance, because the building requires rewiring), then that would be a relevant factor, but would not of itself render the building unsuitable for use as a dwelling.
The UT concluded that the works required did not prevent the building from being suitable for use as a dwelling and upheld the FTT's decision.
This case demonstrates that there is a very high bar for the level of disrepair required to make a building not suitable for use as a dwelling. Examples of sufficiently fundamental problems that would prevent a building from being suitable for use as a dwelling were cited by the FTT as including buildings with a high risk of structural collapse or some other lack of physical integrity, such as the building being radioactive.
Taxpayers should always exercise caution when seeking to reduce their SDLT liability by claiming that a building which has previously been used as a dwelling is not suitable for use as such due to renovation or repairs required to it.
If you have any SDLT queries and would like advice, please contact our tax specialists.
