Not Habitable Cases

(Case Law)

Comment: The First-Tier Tax Tribunal plays a crucial role in interpreting tax law, particularly concerning property habitability for Stamp Duty Land Tax (SDLT). These cases influence both HM Revenue & Customs (HMRC) policies and legislative changes.

Key Points

  • Tribunal decisions set precedents for HMRC’s internal policies.
  • They influence legislative changes by highlighting ambiguities in current tax laws.
  • Public awareness of SDLT obligations is increased through these cases.

Main Principles

  • Properties needing repairs can still be suitable for SDLT if they have basic living facilities.
  • Tribunal decisions on habitability affect internal HMRC guidelines and legislative clarity.
  • Specific cases highlight the nuanced assessment of property conditions for tax purposes.

Introduction to First-Tier Tax Tribunal Cases on Property Habitation

The First-Tier Tax Tribunal plays an important role in interpreting and applying tax law in the United Kingdom. Among its various functions, it addresses disputes that arise between taxpayers and the HM Revenue & Customs (HMRC), including cases that revolve around whether a property is fit for habitation. These cases often involve the application of Stamp Duty Land Tax (SDLT) and can significantly influence both internal and external policies of the HMRC.

Shaping Internal Policy

The outcomes of these tribunal cases serve as important precedents within the HMRC, guiding internal policy and decision-making processes. When a tribunal makes a determination on whether a property is suitable for use as a dwelling, for instance, this not only resolves the individual case at hand but also sets a benchmark for how similar cases might be viewed in the future. These decisions can lead to adjustments in internal guidelines, ensuring that tax assessments are aligned with the latest legal interpretations.

Influencing External Policy

Externally, the decisions made by the First-Tier Tax Tribunal on property habitability have broader implications. They can influence legislative changes by highlighting areas where the current tax law may be ambiguous or outdated. Lawmakers might use these cases as a basis to refine SDLT regulations, making them more clear and equitable for taxpayers. Furthermore, these tribunal cases often receive public attention, which can lead to increased awareness and understanding of SDLT obligations among property owners and potential buyers.

Real-World Case Examples

  • Not Habitable Case: Determining SDLT Rates Based on Dwelling Suitability Cases like Henderson Acquisitions Ltd v Revenue And Customs and P N Bewley Ltd v Revenue & Customs explore whether properties were suitable for use as dwellings at the time of purchase, impacting SDLT rates. These cases highlight the nuances of what constitutes a habitable property for tax purposes.
  • Repair and Renovation Considerations The Mudan & Anor v Revenue and Customs case delves into whether a house needing significant repairs, like re-wiring, can still be considered ‘suitable for use as a single dwelling’. This kind of case clarifies how the condition of a property affects its tax treatment.
  • SDLT Relief Eligibility and Cladding Defects In Fish Homes Ltd v Revenue & Customs, the tribunal examined SDLT relief eligibility for properties with cladding defects. This decision informs property investors and HMRC policy regarding safety issues and their impact on tax relief.

Not Habitable Case: Whether Property Was Suitable For Use As A Dwelling.

(Case Law>Not Habitable Cases)

Henderson Acquisitions Ltd v Revenue And Customs (STAMP DUTY LAND TAX – whether property was suitable for use as a dwelling) [2023] UKFTT 739 (TC) (31 August 2023). Cite as: [2023] UKFTT 739 (TC).

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08922.html 

➤ Even properties needing major repairs can be considered suitable for dwelling and subject to SDLT if they have basic living facilities, as shown in Henderson Acquisitions Ltd’s unsuccessful SDLT refund appeal.

Introduction
This case involves Henderson Acquisitions Limited’s appeal against HMRC’s refusal to refund Stamp Duty Land Tax (SDLT) for a property deemed suitable for dwelling.

Example scenario where this case law principle is relevant
In real estate transactions, companies or individuals may seek SDLT refunds by arguing a property was not suitable for use as a dwelling at the time of purchase. This case exemplifies such a scenario, focusing on whether extensive renovations affect a property’s classification for SDLT purposes.

The legal principles agreed upon
The tribunal confirmed that a property requiring repairs or renovations could still be considered suitable for use as a dwelling. The key factor is whether the property, despite its condition, retains the basic functionalities of a dwelling, such as facilities for personal hygiene, food consumption, and sleeping.

General summary
Henderson Acquisitions Ltd appealed against HMRC’s decision not to refund SDLT, arguing the property was not suitable for use as a dwelling due to its condition at purchase. The tribunal examined the property’s state, including structural soundness, presence of essential living facilities, and the nature of required renovations.

 Despite needing significant repairs, the property was deemed suitable for dwelling as it had not fallen into complete disrepair or required demolition. The appeal was dismissed, reinforcing the principle that properties undergoing renovation can still be classified as dwellings for SDLT purposes, provided they retain essential living functionalities. 

This decision highlights the importance of distinguishing between properties that are merely in need of renovation and those truly unsuitable for dwelling, impacting SDLT 

Not Habitable Case: Property Must Be ‘Suitable for Use’ as Dwelling to Incur Higher SDLT Rates

(Case Law>Not Habitable Cases)

P N Bewley Ltd v Revenue & Customs (STAMP DUTY : Land tax) [2019] UKFTT 65 (TC) (28 January 2019). Cite as: [2019] UKFTT 65 (TC), [2019] STI 1057, [2019] SFTD 611.

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2019/TC06951.html 

➤ A property must be “suitable for use” as a dwelling at the time of sale to face higher SDLT rates, as demonstrated when P N Bewley Ltd successfully appealed against an increased SDLT due to the property’s unsuitable condition for habitation.

Introduction
The case revolves around an appeal by P N Bewley Ltd against an amendment made by HMRC to their stamp duty land tax (SDLT) return, which increased the SDLT payable from £1,500 to £7,500.

Example scenario where this case law principle is relevant
This principle applies in situations where a property, acquired with the intention of demolition and redevelopment, is assessed for SDLT. The key question is whether the property, in its state at the time of transaction, is “suitable for use” as a dwelling, which affects the rate of SDLT applied.

The legal principles agreed upon
The main legal principle established is that a property must be “suitable for use” as a dwelling at the time of the transaction to be subject to higher rates of SDLT. In this case, the tribunal found that the bungalow and land, purchased for demolition and redevelopment, were not suitable for use as a dwelling due to its condition, including the presence of asbestos and the lack of essential services, thus not subject to the higher SDLT rate.

General summary
The tribunal’s analysis focused on whether the bungalow at Rosemount was suitable for use as a dwelling at the time of purchase. Despite having been a dwelling in the past, the property’s condition had deteriorated significantly, with essential services removed and asbestos present, making it unsuitable for habitation. 

The tribunal considered the property’s physical state, the presence of hazardous materials, and the lack of basic living facilities. Ultimately, the tribunal concluded that the property did not meet the criteria for being suitable for use as a dwelling at the transaction time. 

Therefore, the appeal by P N Bewley Ltd was allowed, and the SDLT assessment was reduced to reflect a non-residential rate, highlighting the importance of the property’s condition at the time of sale in determining SDLT liabilities.

Not Habitable Case: Properties Needing Repair Can Still Qualify as ‘Single Dwellings’ for SDLT

(Case Law>Not Habitable Cases)

Mudan & Anor v Revenue and Customs (House in need of re-wiring and other renovation works before it could safely be occupied – whether “suitable for use as a single dwelling”) [2023] UKFTT 317 (TC) (28 March 2023). Cite as: [2023] UKFTT 317 (TC)

URL: http://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08777.html 

➤ Even if a property needs significant repairs or renovations, it can still qualify as “suitable for use as a single dwelling” for SDLT, as seen in the Mudan case where the property’s basic dwelling characteristics were retained.

Introduction The Mudan case revolves around the dispute of stamp duty land tax (SDLT) on a property deemed unsuitable for habitation due to its condition.

Example scenario where this case law principle is relevant
This principle applies in situations where property buyers claim a lower SDLT rate, arguing the property was not habitable at the time of purchase due to significant disrepair or renovation needs.

The legal principles agreed upon
The tribunal confirmed that a property could be considered “suitable for use as a single dwelling” for SDLT purposes even if it requires significant repair or renovation before occupation. The key factor is whether the property, despite its condition, retains the fundamental characteristics of a dwelling.

General summary
The Mudans purchased a property in London for £1,755,000 and initially paid £177,000 in SDLT. They later sought to amend their SDLT return, claiming the property was not suitable for use as a dwelling due to its poor condition, which included the need for re-wiring and other renovations. 

HMRC initially refunded part of the SDLT but later contested this decision, leading to the tribunal case. The tribunal examined whether the property was “suitable for use as a single dwelling” at the time of purchase, considering its condition and the extent of required repairs. Despite acknowledging the property’s poor state, including unsafe electrics and other significant issues, the tribunal found that these problems did not fundamentally alter the property’s nature as a dwelling. 

The repairs needed, while substantial, were not beyond what could be considered ordinary renovation or fixing. Therefore, the property was deemed suitable for use as a dwelling for SDLT purposes, and the appeal was dismissed. This decision underscores the distinction between a property’s readiness for immediate occupation and its fundamental suitability as a dwelling, with implications for SDLT liability in similar cases.

Not Habitable Case: SDLT Relief Eligibility for Properties with Cladding Defects Acquired for Rental Businesses 

(Case Law>Not Habitable Cases)

Fish Homes Ltd v Revenue & Customs (STAMP DUTY : Land tax) [2020] UKFTT 180 (TC) (08 April 2020). Cite as: [2020] UKFTT 180 (TC).

URL: https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07666.html 

➤ Properties with defects like cladding still qualify as “dwellings” for SDLT purposes, affecting the SDLT rate and eligibility for relief, as demonstrated in Fish Homes Ltd’s case involving a flat intended for rental.

Introduction
This case involves Fish Homes Ltd’s appeal against HMRC’s decision on Stamp Duty Land Tax (SDLT) for a flat with defective cladding.

Example scenario where this case law principle is relevant
In real life, this principle applies when purchasing properties with potential defects, such as cladding similar to that used on the Grenfell Tower. The case explores whether such properties qualify as “dwellings” for SDLT purposes and the applicability of relief for properties acquired for rental businesses.

The legal principles agreed upon
The main legal principles established include the definition of a “dwelling” for SDLT purposes, the conditions under which a property transaction is considered a residential transaction subject to higher SDLT rates, and the circumstances under which relief from these higher rates can be applied or withdrawn.

General summary
Fish Homes Ltd purchased a flat intended for their rental portfolio, unaware of its defective cladding similar to Grenfell Tower. The issue arose whether the flat, given its cladding, constituted a “dwelling” for SDLT purposes, particularly concerning the residential transaction charge and potential relief under Schedule 4A of the Finance Act 2003. 

The Tribunal examined whether the flat’s condition rendered it unsuitable as a dwelling and thus ineligible for the higher SDLT rates and applicable reliefs. Despite the cladding issues, the Tribunal concluded the flat was a dwelling at the time of purchase, making the initial SDLT return and payment correct.

However, the relief from the higher SDLT rate was withdrawn due to the subsequent occupation by a non-qualifying individual (the appellant’s daughter), requiring a further SDLT return, which was not submitted. The case underscores the importance of the property’s condition in determining SDLT liabilities and the strict criteria for relief eligibility and retention.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.