Executive Summary

HMRC operates under the Finance Act 2003 concerning Stamp Duty Land Tax (SDLT), which governs the imposition of land tax on property transactions. This act also provides taxpayers with the right to claim a refund for overpaid stamp duty if an error in the tax assessment is identified.

If a dwelling is not suitable for use, it should be classified as non-residential for stamp duty purposes. Under certain circumstances where properties have been incorrectly classified for stamp duty purposes, this can lead to a stamp duty rebate from HMRC.

We believe a dwelling is not suitable for use:
– if it requires more than some repair or renovation
– has the kind of hazards which would cause a local authority to issue a prohibition notice restricting the use of the premises
– where a reasonable person would say that it was too dangerous to live there.

Important.

If you wish to self assess is non-residential for stamp duty purposes due to hazardous condition issues at purchase, see this article.

HMRC’s Position on Claiming Stamp Duty for Uninhabitable Properties

The Finance Act 2003 includes provisions that allow errors to be corrected. A common mistake occurs when properties are incorrectly classified as residential for stamp duty purposes, even though they should be assessed as non-residential.

If you have purchased a property and paid higher rates of stamp duty, but believe your property was misclassified, you are entitled under the Finance Act 2003 to seek correction. You can ask HMRC to reclassify your property from residential to non-residential for stamp duty purposes.

If you paid the higher rate SDLT, such as 3%, you could be entitled to a refund. Below we have a stamp duty calculator available to help you estimate how much you could be refunded.

HMRC follows a “pay now, check later” policy. This means that if your case is procedurally correct—i.e., you submit the right documents and make the correct request—HMRC is likely to process the claim. However, under the “pay now, check later” approach, they do not initially scrutinise the legal arguments behind your case.

If HMRC opens an enquiry into your case, they will examine the legal arguments. If they believe your legal arguments are ‘wrong’, they may demand the stamp duty back, along with interest.

If HMRC believes that you have attempted deception or made a claim without a valid basis, they may impose a penalty.

In general, HMRC believes most habitability cases are ‘wrong’. This raises the question: what constitutes a ‘right’ case for HMRC? HMRC guidance suggests property which cannot be repaired, is not suitable for use as a dwelling. I.e. condition issues are so serious, the property has to be demolished.

However, HMRC’s satisfaction is not the key issue; what matters is the correct interpretation of the Finance Act 2003, which is guided by case law.

The question of whether a property should be assessed as residential or non-residential hinges on the judicial interpretation of this phrase from the Finance Act 2003: “suitable for use as a single dwelling.”

If a property is not suitable for use as a single dwelling, then it should not be assessed as residential for stamp duty purposes.

Our position, along with many others, is that:

A dwelling is not suitable for use:
– if it requires more than some repair or renovation
– has the kind of hazards which would cause a local authority to issue a prohibition notice restricting the use of the premises
– where a reasonable person would say that it was too dangerous to live there.

In discussions with HMRC, they acknowledge that there is a ‘technical difference of opinion’ between us and them. Our argument isn’t explicitly accepted by HMRC, however it is based on case law as I will explain later.

Importance of Correct Classification

It’s essential to correctly classify a property as either residential, non-residential, or mixed-use for Stamp Duty purposes to ensure that your Stamp Duty Land Tax (SDLT) self-assessment is accurate and correct. The classification directly impacts the SDLT rates, which can vary significantly.

For instance, if a property is incorrectly classified as residential when it should be non-residential, you might end up paying a higher SDLT rate. Conversely, misclassifying a residential property as non-residential could lead to underpayment, potentially resulting in penalties and interest from HMRC.

You can use the stamp duty calculator to estimate how much you might need to pay.

Differences in Rates for Residential and Non-Residential Properties

The rates of SDLT vary depending on whether the property is classified as residential or non-residential (commercial). Each type of property has its own set of rates and thresholds.

For residential properties, the SDLT rates are as follows:

• 0% on the portion up to £250,000
• 5% on the portion between £250,001 and £925,000
• 10% on the portion between £925,001 and £1.5 million
• 12% on the portion above £1.5 million

Additional surcharges apply for certain types of residential purchases. For example, an extra 3% is added for second homes and buy-to-let properties.

Non-residential properties, which include commercial properties and mixed-use buildings, follow a different rate structure:

• 0% on the portion up to £150,000
• 2% on the portion between £150,001 and £250,000
• 5% on the portion above £250,000

These lower rates for non-residential properties can lead to significant savings, particularly for high-value transactions.

Calculation examples

• Buy-to-Let Property for £150,000: Difference of £4,500
• Buy-to-Let Property for £500,000: Difference  of £13,000
• Owner-Occupier Property for £1,500,000: Difference of £26,750

The Legal Framework for Claiming Overpaid Stamp Duty

Finance Act 2003
The Finance Act 2003 is the cornerstone legislation governing Stamp Duty Land Tax (SDLT) in the UK. It outlines the circumstances under which SDLT is charged, and importantly, it provides the legal basis for claiming overpaid tax. This legislation ensures that taxpayers are not unfairly burdened by misclassified property transactions.

Key Provisions: Paragraph 34, Schedule 10

• Paragraph 34, Schedule 10 of the Finance Act 2003 specifically addresses the process and conditions under which a taxpayer can claim overpaid SDLT. It states:

  • (1) This paragraph applies where—

    • (a) A person has paid an amount by way of tax but believes that the tax was not due, or
    • (b) A person has been assessed as liable to pay an amount by way of tax, or there has been a determination to that effect, but the person believes that the tax is not due.

  • (2) The person may make a claim to the Commissioners for Her Majesty’s Revenue and Customs (HMRC) for repayment or discharge of the amount.

  • This provision ensures that taxpayers who have overpaid SDLT due to errors in classification or other reasons can seek a refund.

Eligibility Criteria
For a reclassification claim to be considered valid under the Finance Act 2003, certain eligibility criteria must be met:

1. Property Purchase Date

• The property must have been purchased within the last four years from the date of receipt of the claim by HMRC. This is stipulated under Section 80 of the Finance Act 2003, which sets a four-year limit for making amendments to SDLT returns and claiming overpaid tax.

2. Location of the Property

• The property must be located in England or Northern Ireland. Properties located in Scotland and Wales are subject to different legislative frameworks for property taxes (Land and Buildings Transaction Tax in Scotland and Land Transaction Tax in Wales).

Legal Principles. Suitable For Use as a Dwelling

Establishing the Legal Justification for a Stamp Duty Rebate Based on Property Condition

To successfully claim a stamp duty rebate based on the condition of a property, it is essential to have a strong legal foundation. this is because when you submit a claim for reassessment to HMRC, there has to be a justifiable reason to reassess your stamp duty liability. In this case, if your property had hazardous condition issues at purchase which required more than some repair or renovation, then you can argue your property was not “suitable for use as a single dwelling”.

Case Arguments for Overpayment Relief Based on Property Reclassification

1. Introduction

The argument presented is intended to demonstrate that for a property to be deemed “suitable for use as a dwelling” under the Finance Act 2003, Schedule 4A paragraph 7(2), it must be safe for occupation at the effective date of the transaction. This means that the property should not pose any hazards to its occupants, as such hazards would render it unsuitable for use as a dwelling. The statutory definition, which states that “a building or part of a building counts as a dwelling if— (a) it is used or suitable for use as a single dwelling, or (b) it is in the process of being constructed or adapted for such use,” underscores that suitability involves the property’s condition at the effective date of the transaction. If, at that time, the property is hazardous—such as having structural defects, severe dampness, or other serious health and safety risks—it would not meet the suitability criteria.

As a result, we argue that my client’s property is not suitable for use as a dwelling.

My client’s claim for overpayment relief is based on reclassifying the property at <> from ‘residential’ to ‘non-residential’ for Stamp Duty Land Tax (SDLT) purposes.

2. Legislative Intent and the Requirement for Hazard-Free Dwellings

Part of the legislative intent underpinning key housing laws, such as the Housing Act 2004 and the Homes (Fitness for Human Habitation) Act 2018, clearly emphasises the necessity for properties to be free from hazardous conditions to be deemed suitable for use as dwellings. These statutes, along with other related legislation, collectively establish a legal framework that prioritises the safety and well-being of occupants by ensuring that properties meet stringent health and safety standards.

Housing Act 2004: The Housing Act 2004 introduces the Housing Health and Safety Rating System (HHSRS), a tool designed to assess the potential risks posed by various hazards within a residential property. The Act mandates that local authorities identify and address Category 1 hazards, which are the most serious risks to occupants’ health and safety. This legislative framework underscores the principle that a dwelling must be free from significant hazards to be considered fit for habitation. The presence of Category 1 hazards, by definition, renders a property unsuitable for use as a dwelling, aligning with the broader legislative intent to protect occupants from unsafe living conditions.

Homes (Fitness for Human Habitation) Act 2018: This Act further strengthens the legal obligation on landlords to ensure their properties are safe, healthy, and free from serious defects. It empowers tenants to take direct legal action against landlords who fail to maintain their properties in a condition that meets basic health and safety standards. The Act reinforces the legislative intent that a property must be free from hazardous conditions to be deemed suitable for habitation.

Interpreting Legislative Intent: When interpreting these statutes, it is clear that the legislative intent is to ensure that only those properties that are safe and free from hazards are considered suitable for use as dwellings. The statutory requirement that a property must be “suitable for use as a single dwelling” inherently includes the expectation that the property does not pose significant health and safety risks to its occupants.

3. Status at The Effective Date of Transaction

When determining whether a property qualifies as a “dwelling” for Stamp Duty Land Tax (SDLT) purposes, it must be “suitable for use as a single dwelling” at the time of the transaction. This assessment is based on the property’s condition at the effective date, typically the completion date, without considering potential future improvements or past use.

In the case Keith Fiander and Samantha Brower v The Commissioners for HM Revenue and Customs [2021] UKUT 0156 (TCC), the Upper Tribunal reinforced the principle that a property’s suitability for use as a dwelling must be determined based on its condition at the effective date of the transaction. Judges Thomas Scott, Ashley Greenbank observed:

“The status of a property must be ascertained at the effective date of the transaction, defined in most cases… as completion. So, the question of whether the property is suitable for use as a single dwelling falls to be determined by the physical attributes of the property as they exist at the effective date, not as they might or could be.” Paragraph 48 (1)

In P N Bewley Ltd v HMRC ([2019] UKFTT 65 (TC) Judge Scott considered the broader legislative context, acknowledging that some buildings, while technically capable of being dwellings, are unsuitable for that purpose at the time of the transaction. Judge Scott explained:

“We start by approaching this issue by looking only at the words of paragraph 18(1) Schedule 4ZA FA 2003 used or suitable for use as a single dwelling . The used as test at a single time is a clear binary issue either the building was on completion date used as a dwelling or it was not. For buildings that were not so used on the completion date it would be possible to have a yes/no test: eg had its last use been as a dwelling, or if never used was it designed for use[1] as a dwelling? But the test is not like that it asks the single question: was it ‘suitable to be used as a dwelling? There could have been other descriptions used: eg whether it was capable of being used as a dwelling. It seems to us that the legislation contemplates that there must be and is a class of buildings that might not meet the test and the likely class is those which are capable of being a dwelling but which are unsuitable for that purpose. The question then is where is the suitable/not suitable boundary.“. Paragraph 52.

These observations emphasise that the law is intended to classify properties strictly based on their actual condition at the effective date of the transaction.

4. Accommodation With Basic Living Needs

In the case of Keith Fiander and Samantha Brower v. The Commissioners for HM Revenue and Customs [2021] UKUT 0156 (TCC), the Upper Tribunal clarified that a dwelling must meet all basic domestic living needs. Judge Thomas Scott and Judge Ashley Greenbank stated:

“A dwelling is the place where a person (or a group of persons) lives. A building or part of a building can be suitable for use as a dwelling only if it accommodates all of a person’s basic domestic living needs: to sleep, to eat, to attend to one’s personal and hygiene needs; and to do so with a reasonable degree of privacy and security.”

This definition implies that the suitability of a dwelling encompasses the ability to provide a safe and secure environment where basic human needs can be met. If the property poses any risks to health or safety, such as structural instability or other hazards, it cannot be deemed suitable for use as a dwelling.

5. Repair of a property 

In Keith Fiander and Samantha Brower v The Commissioners for HM Revenue and Customs [2021] UKUT 0156 (TCC), the Upper Tribunal emphasised that a property’s suitability as a dwelling must be judged based on its condition at the effective date of the transaction. Judges Thomas Scott and Ashley Greenbank stated:

“The status of a property must be ascertained at the effective date of the transaction… So, the question of whether the property is suitable for use as a single dwelling falls to be determined by the physical attributes of the property as they exist at the effective date, not as they might or could be.” Paragraph 48 (1)

The Tribunal clarified that while a property in disrepair could still be “suitable for use” as a dwelling if the needed repairs are minor, the degree of disrepair and its impact on usability must be assessed by the First-tier Tribunal (FTT) based on the case’s specific facts. They noted:

“A property may be in a state of disrepair and nevertheless be suitable for use as either a dwelling or a single dwelling if it requires some repair or renovation; that is a question of degree for assessment by the FTT.” Paragraph 48 (1)

This distinction between minor repairs and unsafe conditions ensures that only properties genuinely fit for habitation at the effective date qualify for residential SDLT rates.

A relevant example is provided in the case of P N Bewley Ltd v Revenue & Customs [2019] UKFTT 65 (TC), where the FTT addressed whether a property was “suitable for use” as a dwelling on the date of the transaction. The property in question was a severely dilapidated bungalow intended for demolition and redevelopment.

The Tribunal stressed the importance of assessing a property’s condition on its own merits at the time of the transaction, stating:

“The test set out clearly in paragraph 18(1)(a) Schedule 4ZA is whether it was ‘suitable’ to be used as a dwelling at the time of purchase: it is not whether it was capable of becoming so used in the future.” Paragraph 43.

In this case, the Tribunal found that the bungalow was not suitable for use as a dwelling, emphasising:

“Taking into account the state of the building as shown in the photographs with radiators and pipework removed and with the presence of asbestos preventing any repairs or alterations that would not pose a risk to those carrying them out, we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.”  Paragraph 53.

This case supports the argument that if a property requires more than just some renovation or repair—if it is in a state where it cannot be safely inhabited or used as a dwelling without significant work—it should be considered unsuitable for use as a dwelling at the time of the transaction. Therefore, such a property should not attract the higher residential SDLT rates.

6. Suitable for Use as a Dwelling Includes Safety and Security

In the case of Keith Fiander and Samantha Brower v The Commissioners for HM Revenue and Customs [2021] UKUT 0156 (TCC), the Upper Tribunal, presided over by Judge Thomas Scott and Judge Ashley Greenbank, underscored the essential role of safety and security in determining whether a property qualifies as “suitable for use as a dwelling” for Stamp Duty Land Tax (SDLT) purposes.

The Tribunal clarified that the term “suitable” implies more than just the potential or capability of a property being adapted for use as a dwelling. As stated by Judge Thomas Scott and Judge Ashley Greenbank:

“The word ‘suitable’ implies that the property must be appropriate or fit for use as a single dwelling. It is not enough if it is capable of being made appropriate or fit for such use by adaptations or alterations.” Paragraph 48

This statement emphasises that a property must be inherently fit for habitation at the time of the transaction, meeting safety standards that ensure it is appropriate for living in its current condition. The requirement for suitability is not met merely by the property’s potential to become safe or habitable after future modifications.

Privacy and Security as Integral Components of Suitability. The Tribunal further discussed the necessity of privacy and security as integral components of a property’s suitability for use as a dwelling. Judge Thomas Scott and Judge Ashley Greenbank noted:

“Some degree of privacy and security is required for a building (or part) to be used as a dwelling.”
Paragraph 56

This requirement is typically fulfilled by features such as secure, lockable doors, which ensure that the property provides a secure environment for its occupants. The Tribunal elaborated on this point, indicating that the absence of such security features could render the property unsuitable for use as a dwelling. They stated:

“If one has a situation where a building (or part) is suitable for a use only in quite specific circumstances, this inclines against determining that the building is ‘suitable’ for that use.”  Paragraph 56

This statement underscores the necessity for a property to meet a broad, objective standard of suitability for use as a dwelling. If a property is only considered suitable under very specific or unusual conditions, such as needing specific modifications to make it habitable, it does not satisfy the general legal standard for being classified as a dwelling under SDLT rules.

7. Property not Suitable as a Dwelling if Severe Risks to Health and Safety

One of the issues discussed in P N Bewley Ltd v HMRC ([2019] UKFTT 65 (TC)) was the presence of asbestos in various parts of the bungalow, which Judge Thomas highlighted as a significant safety concern. He explained that the asbestos, found in the roof slates, floor tiles, and other parts of the building, posed a considerable risk during any potential renovation or habitation. This hazard made it virtually impossible to carry out necessary repairs or renovations without endangering those involved. Judge Thomas stated:

“Taking into account the state of the building as shown in the photographs on Mrs Bewley’s phone with radiators and pipework removed and with the presence of asbestos preventing any repairs or alterations that would not pose a risk to those carrying them out, we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.” Paragraph 53.

These quotes and interpretations from Judge Thomas Scott in the P N Bewley Ltd v HMRC case underscore the importance of evaluating a property’s suitability for use as a dwelling based on its condition at the effective date of the transaction.

In Fish Homes Ltd v Revenue & Customs ([2020] UKFTT 180 (TC)), Judge Hellier commented that safety concerns, specifically those that present a significant risk to the occupants, directly impact the classification of a property as a dwelling. He stated:

 “Defects which make it dangerous to live in fall within that category, but such danger must in my view be such that a reasonable person would say ‘it’s too dangerous to live there.’ Some risks to health and safety may fall into this category: high radioactive pollution, the high probability of walls collapsing, and the kind of hazards which would spur a local authority to issue a prohibition notice restricting the use of the premises.” Paragraph 62.

This comment highlights that a property is not suitable as a dwelling if it poses severe risks to health and safety that would deter a reasonable person from living there.

 Application of Prohibition Notices: Judge Hellier further pointed out that the existence of a prohibition notice from a local authority, which restricts the use of the premises due to safety concerns, would be a clear indication that the property is not suitable for use as a dwelling:

 “The risk which the cladding on the block created was a risk that if a fire started and if it spread to the cladding it would maim or kill the occupants of the flat… However, the fact that the local authority was not shown to have served a prohibition or enforcement notice, that Miss Fish’s friend agreed to live in the flat and that Mr and Mrs Fish countenanced Miss Fish living there, meant that a reasonable person would not say that it was too dangerous to live there.” Paragraph 63.

In this instance, the absence of a prohibition notice was a factor in the Tribunal’s decision that the property was still suitable as a dwelling, despite the known risks associated with the cladding.

 Comparative Analysis with Previous Cases: The decision in Fish Homes Ltd draws on the reasoning in the P N Bewley Ltd v HMRC case, where a derelict bungalow was deemed unsuitable as a dwelling due to significant safety hazards, including the presence of asbestos. Judge Hellier acknowledged this precedent, noting the importance of distinguishing between the capability and suitability of a property for use as a dwelling:

“In that case [Bewley], the FTT concluded that a derelict bungalow affected/infused with asbestos was not a dwelling for the purposes of schedule 4ZA FA 2003 because it was not suitable for use as such.”  Paragraph 48.

8. Property Hazardous, Even if No Prohibition Order is in Place

In the case of Humber Landlords Association v Hull City Council [2019] EWHC 332 (Admin), HH Judge Klein examined whether a property could be deemed unsafe and unsuitable for habitation due to hazardous condition issues, even if no formal prohibition notice had been issued. This judgement highlights the responsibilities of local housing authorities under the Housing Act 2004 to address hazardous condition issues that pose significant risks to the health and safety of occupants, regardless of formal enforcement actions.

Recognition of Serious Risks Posed by Hazardous Condition Issues. Judge Klein emphasised the serious risks associated with Category 1 or significant Category 2 hazardous condition issues. He clarified that these issues could make a property unsuitable for habitation, regardless of whether a formal prohibition notice had been served. He stated:

“If a local housing authority consider that a category 1 hazard exists on any residential premises, they must take the appropriate enforcement action in relation to the hazard.” Paragraph 72(i)).

This statement underscores the statutory obligation of local authorities to consider enforcement actions when hazardous condition issues are identified. The existence of such issues indicates that a property may be unsafe for occupants, supporting the argument that hazardous condition issues alone can render a property uninhabitable, even without the issuance of a formal prohibition notice.

Imminent Risk of Serious Harm from Hazardous Condition Issues. The judgement further discusses the local council’s duty to take action when hazardous condition issues present an imminent risk of serious harm, even in the absence of formal notices. Judge Klein referenced the council’s enforcement policy:

“Take formal enforcement action – this action will normally be taken where there is an imminent risk of serious harm, the conditions are injurious to health (where statutory nuisance is involved)…” Paragraph 44.

This quote highlights that hazardous condition issues posing an imminent threat are recognised by law as potentially dangerous, reinforcing the principle that such issues can make a property unsuitable for habitation, even if formal enforcement has not yet begun.

Duty of Local Authorities to Address Hazardous Condition Issues. Judge Klein also reaffirmed the duty of local authorities under the Housing Act 2004 to actively monitor and improve housing standards, specifically focusing on hazardous condition issues that could endanger the safety of occupants. He explained:

“The clear purpose of Part 1 of the 2004 Act … is to require local housing authorities to monitor the housing stock in their area and to take appropriate steps to reduce the incidence of sub-standard housing, so that the quality of the housing stock in their area is improved.” Paragraph 52.

This statement supports the argument that hazardous condition issues, which threaten the health and safety of occupants, are sufficient grounds to classify a property as unsuitable for habitation. The duty of local authorities to intervene when such issues are present is mandated by law, regardless of whether a formal prohibition notice has been issued.

In summary, this case underscores the critical role of local authorities in ensuring that housing conditions are safe and habitable, with or without the issuance of formal enforcement notices, highlighting the broader protective scope of the Housing Act 2004 concerning hazardous condition issues. 

9. Conclusion: The Impact of Hazardous Condition Issues on Property Classification for SDLT

The legal precedents emphasise the importance of evaluating a property’s condition at the effective date of a transaction when determining its classification as a “dwelling” for Stamp Duty Land Tax (SDLT) purposes. Under the Finance Act 2003, Schedule 4ZA, a property must be “suitable for use as a single dwelling” at the time of the transaction to be classified as a dwelling.

In Keith Fiander and Samantha Brower v The Commissioners for HM Revenue and Customs [2021] UKUT 0156 (TCC), the Tribunal made it clear that the suitability of a property must be assessed based on its physical condition at the effective date, without considering potential future adaptations. This was further illustrated in P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC), where significant hazardous condition issues, such as asbestos, led to the conclusion that the property was unsuitable as a dwelling, thus exempting it from the higher residential SDLT rates.

Similarly, in Fish Homes Ltd v Revenue & Customs [2020] UKFTT 180 (TC), the Tribunal highlighted that safety is a crucial factor in determining a property’s suitability for habitation. If a property presents severe health or safety risks, such as structural instability or exposure to hazardous materials, it cannot be deemed suitable for use as a dwelling, even in the absence of a formal prohibition notice.

In conclusion, the legal precedents clearly establish that if a property is not suitable for use as a dwelling due to hazardous condition issues present at the effective date of the transaction, it should not be classified as a dwelling for SDLT purposes. Hazardous condition issues that compromise health and safety at the time of the transaction disqualify the property from residential classification under SDLT, aligning with the broader legislative intent to protect occupants from unsafe living conditions.

Categorisation of hazards. The Housing Act 2004

The Housing Act 2004 grants local authorities significant powers to address properties that pose serious risks to the health and safety of occupants. Specifically, Sections 20 and 21 of the Act empower local authorities to issue prohibition notices when a property is identified as having Category 1 hazards, which are considered the most serious and present an imminent danger to the occupants.

Category 1 Hazards

Under the Housing Act 2004, a “hazard” is defined as any risk of harm to the health or safety of an occupier or potential occupier of a dwelling, as assessed under the Housing Health and Safety Rating System (HHSRS). Hazards are categorised based on their severity, with Category 1 hazards being the most serious. These include risks such as:

• Structural defects that could lead to potential collapse or falls.
• Extreme dampness or mould growth, which can cause respiratory issues.
• Electrical hazards that could result in fire or electrocution.
• Serious fire hazards due to inadequate fire safety measures.
• Contaminated water supplies.

Prohibition Notices: Sections 20 and 21

Sections 20 and 21 of the Housing Act 2004 outline the local authority’s powers to issue prohibition notices in response to Category 1 and 2 hazards.

Section 20: Duty to Take Enforcement Action for Category 1 Hazards

Section 5 of the Housing Act 2004 imposes a general duty on local authorities to take enforcement action when a Category 1 hazard is identified. It states:

“If a local housing authority considers that a Category 1 hazard exists on any residential premises, they must take the appropriate enforcement action in relation to the hazard.”

This provision clearly imposes a mandatory duty on the local authority to act when it determines that a Category 1 hazard is present, ensuring that the authority takes necessary steps to address and mitigate the identified health and safety risks within the premises. One of the enforcement options available is issuing a prohibition notice.

Section 21: Prohibition Orders in Respect of Category 2 Hazards

Section 21 provides the framework for issuing prohibition orders related to Category 2 hazards. It states:

“Prohibition orders relating to category 2 hazards: power of authority to make order (1) If— (a) the local housing authority are satisfied that a category 2 hazard exists on any residential premises, and (b) no management order is in force in relation to the premises under Chapter 1 or 2 of Part 4, the authority may make a prohibition order under this section in respect of the hazard.”

This means that if the local authority deems a property, or a portion of it, to be too dangerous due to the identified Category 2 hazard, they can issue a prohibition order that restricts its use. The order can specify various restrictions, including:

• Prohibiting the use of the entire property as a residence.
• Limiting the use of specific rooms or areas within the property.
• Restricting the number of occupants or types of occupancy (e.g., prohibiting use by children or the elderly if the hazard poses particular risks to these groups).

In conclusion, given the significant hazards present in (my client’s property),  the likely issuance of a prohibition notice had an HHSRS inspection been conducted at the effective date of the transaction, and the extensive repairs required to make this property safe, the property should not have been classified as residential for SDLT purposes by my client’s conveyancing solicitor. Instead, it should now be reclassified as non-residential for SDLT purposes. This reclassification is consistent with the legislative intent and judicial interpretation of the relevant statutory provisions. 

Grounds for Claim

The most common grounds for claiming overpaid SDLT revolve around the misclassification of the property:

Residential vs. Non-Residential

A common issue leading to overpayment is the incorrect classification of a property as residential instead of non-residential. for higher rate stamp duty payers,  residential properties typically attract higher SDLT rates compared to non-residential properties. Therefore, if a property initially classified as residential should have been classified as non-residential due to its condition or intended use, the taxpayer is entitled to claim the overpaid SDLT.

Mixed Use

A property can also be classified for stamp duty purposes as mixed-use if it includes both residential and non-residential elements. Mixed-use properties typically have components used for commercial purposes, such as storage, retail, or offices, along with residential elements. Stamp duty for mixed-use properties is assessed as non-residential. However, for the purposes of this article, we will not focus on mixed-use reclassification.

Quantifying Property Condition Using HHSRS

Housing Health and Safety Rating System (HHSRS) Condition hazards are defined under the HHSRS legislation, which forms the basis of habitability standards. The Housing Act 2004, specifically Sections 20 and 21, grants local authorities the power to issue prohibition notices on properties to prevent their use due to various condition hazards.

Section 20 of the Housing Act 2004 states:

“If a local housing authority considers that a category 1 hazard exists on any residential premises, they must take the appropriate enforcement action in relation to the hazard.”

Section 21 of the Housing Act 2004 adds:

“A local housing authority may take enforcement action in relation to a category 2 hazard if they consider it appropriate.”

If a residential property could have had condition hazards that warranted a prohibition order, then the property could have been legally restricted from use at purchase and therefore we argue should not have been assessed as residential for SDLT purposes.

Common Condition Hazards in UK Properties
Properties with issues such as damp, mould, old wiring, gas problems, a damaged roof, or structural problems at the time of purchase might qualify for stamp duty claims based on their hazardous nature. The Housing Health and Safety Rating System (HHSRS) identifies health and safety hazards in residential properties, classified into two categories:

Category 1 Hazards: Serious risks to health or safety requiring immediate action, ordered by likelihood of occurrence in an un-renovated property:

• Rising damp: Damp patches on lower walls caused by moisture rising from the ground.
• Mould due to damp: Black mould growing on walls due to poor ventilation.
• Dampness causing rot: Wooden structures rotting due to persistent damp.
• Faulty electrical wiring: Exposed wires or old wiring prone to short-circuiting.
• No functioning boiler: A broken boiler leaving the property without heating.
• Excess cold (lack of heating): Inadequate insulation leading to cold indoor temperatures.
• Lead in paint or pipes: Old lead-based paint flaking off walls.
• Fire risk from faulty installations: Poorly installed electrical outlets or appliances.
• Poor sanitation: Blocked or overflowing sewage systems.
• Carbon monoxide: Faulty gas appliances emitting carbon monoxide.
• Unserviced gas cookers: Gas cookers that haven’t been checked, posing a risk of leaks.
• Falls associated with stairs: Steep, narrow stairs without handrails.
• Unsafe stairs or steps: Broken or missing steps on a staircase.
• Blocked or obstructed exits: Furniture blocking escape routes.
• Broken or missing handrails: Staircases without secure handrails.
• Unstable floors: Floorboards not fixed properly, causing instability.
• Structural collapse: Significant cracks in walls indicating potential collapse.
• Electrical hazards (e.g., exposed wiring): Live wires exposed in living areas.
• Asbestos presence: Asbestos insulation in an older property.
• Structural collapse of ceilings or walls: Ceiling plaster falling due to water damage.
• Falls between levels (e.g., balconies): Lack of guardrails on a balcony.
• Unsafe balconies or railings: Loose or broken balcony railings.
• High radon levels: Radon gas seeping into basements from the ground.
• Inadequate water supply: Intermittent or contaminated water supply.
• Explosions (e.g., gas leaks): Leaking gas pipes posing a risk of explosion.
• Fire from cooking appliances: Grease fires from unattended stoves.

Category 2 Hazards: Less immediate but still significant risks, ordered by likelihood of occurrence in an un-renovated property:

• Worn carpets with trip hazard: Frayed or loose carpet edges causing tripping.
• Inadequate ventilation: No extractor fans in bathrooms or kitchens causing dampness.
• Pest infestations: Rodents or insects in the property causing health risks.
• Falls on level surfaces: Slippery tiles or wet floors.
• Excessive noise: Constant noise from nearby traffic or industrial activity.
• Hot surfaces and materials (risk of burns): Unshielded radiators or hot water pipes.
• Inadequate lighting: Dim or insufficient lighting in key areas like stairwells.
• Entry by intruders (inadequate security): Weak locks on doors and windows.
• Overcrowding: Too many occupants for the available space, leading to unsafe living conditions.
• Inadequate cooking facilities: No proper kitchen setup for safe food preparation.
• Poor ergonomics (e.g., poorly designed living spaces): Kitchen counters that are too high or low.
• Excess heat: Poorly ventilated attic spaces becoming excessively hot.

Applying This:

When claiming stamp duty based on property condition, it’s essential to understand that:

• The property must have had hazards at the time of purchase that could justify a prohibition notice.
• The property doesn’t need to be visibly derelict; specific hazards like faulty wiring or unserviced gas appliances may be sufficient.
• Documenting these hazards with evidence, such as inspection reports and photographs, is crucial for a successful claim.

Condition Assessment Tool

Reasons for Rebate Denial  

The Finance Act 2003 outlines specific scenarios under which a claim for overpaid Stamp Duty Land Tax (SDLT) may be denied. Understanding these reasons is important for ensuring that claims are prepared accurately and have the best chance of approval. Here are the primary reasons a claim might be denied, with direct quotes from the legislation:

1.Lack of Supporting Evidence

One of the most common reasons for the denial of a claim for overpaid Stamp Duty Land Tax (SDLT) is the lack of sufficient supporting evidence. According to the Finance Act 2003, specifically Paragraph 34, Schedule 10, the necessity for comprehensive documentation to substantiate claims is emphasised. The legislation stipulates:

“An officer of Revenue and Customs may refuse a claim if the claimant does not— (a) make available all such records as are required by the officer, or (b) provide all such information, in such form as may be required by the officer, in support of the claim” (Finance Act 2003, Schedule 10, Paragraph 34(1)).

Furthermore,

“A claim may be refused by an officer of Revenue and Customs if the officer is not satisfied by the evidence provided in support of the claim” (Finance Act 2003, Schedule 10, Paragraph 34(2)).

To support a claim for overpaid SDLT, the claimant must provide comprehensive and compelling evidence that justifies the reclassification of the property and demonstrates the overpayment. The required documentation includes:

• Photographs and Video Footage: Visual evidence of the property’s condition at the time of purchase is critical. This evidence should clearly show any structural damage, lack of utilities, or other significant condition hazards that justify the reclassification from residential to non-residential. High-resolution images and detailed video tours can provide a clear demonstration of the property’s state.
• Property Surveys: Detailed reports from qualified surveyors are helpful. These surveys should document property condition and purchase. The surveys must be dated around the time of the purchase to validate the property’s condition at that time.
• Contractor Invoices: Documentation of any repair and maintenance work needed to make the property habitable can support the claim. These invoices should detail the specific issues addressed and the costs involved, indicating that significant repairs were necessary to render the property fit for residential use.
• Legal Documents: Copies of legal documents, such as the TR1 (Transfer of Whole of Registered Title), SDLT5 (Certificate of Stamp Duty Land Tax), contract of sale, and completion statement, are necessary to establish the transaction details and support the claim’s timeline. These documents confirm the purchase price, date, and any relevant terms that might impact the SDLT assessment.

HMRC requires this evidence to ensure that the claim is legitimate and that the property’s condition at the time of purchase justifies a reclassification. Without sufficient and convincing documentation, HMRC is likely to deny the claim, as there would be no concrete proof to support the assertion that the SDLT was overpaid due to an incorrect property classification.

In summary, providing detailed and thorough evidence is crucial for a successful claim. Claimants must ensure that all required documentation is complete, accurate, and compelling to substantiate their claim and avoid denial based on insufficient supporting evidence.

2. Time Limit Expired
The Finance Act 2003 specifies a strict time frame within which claims must be made. According to Section 80, claims for SDLT reassessment must be submitted within four years from the effective date of the transaction. The legislation states:

“An assessment to tax may not be made more than 4 years after the effective date of the transaction” (Finance Act 2003, Section 80).

If the claim is made after this period, it is automatically denied regardless of its merits.

3. Discrepancies in the Claim
Claims must be accurate and consistent. Any discrepancies or inconsistencies in the information provided can lead to denial. The legislation under Paragraph 34A details this:

“Case C is where the claimant could have sought relief by taking such steps within a period that has now expired, and knew, or ought reasonably to have known, before the end of that period that such relief was available” (Finance Act 2003, Schedule 10, Paragraph 34A(4)).

4. Failure to Meet Legislative Requirements
Claims must comply with all legislative requirements set out in the Finance Act 2003. This includes adherence to specific provisions under Paragraphs 34A to 34E, Schedule 10, which detail circumstances under which HMRC is not liable to give effect to a claim:

“Case A is where the amount paid, or liable to be paid, is excessive by reason of a mistake in a claim or election” (Finance Act 2003, Schedule 10, Paragraph 34A(2)).

“Case B is where the claimant is or will be able to seek relief by taking other steps under this Part of this Act” (Finance Act 2003, Schedule 10, Paragraph 34A(3)).

5. Grounds Already Addressed in an Appeal
If the grounds for the claim have been previously put forward during an appeal process and a determination has been made, the claim cannot be reconsidered. This includes:

“Case D is where the claim is made on grounds that have been put to a court or tribunal in the course of an appeal by the claimant relating to the amount paid or liable to be paid, or have been put to Her Majesty’s Revenue and Customs in the course of an appeal by the claimant relating to that amount that is treated as having been determined by a tribunal” (Finance Act 2003, Schedule 10, Paragraph 34A(5)).

6. Payment Made in Enforcement Proceedings

If the SDLT was paid as a result of enforcement proceedings brought by HMRC, or in accordance with an agreement settling such proceedings, a claim on those grounds may be denied. This includes:

“Case F is where the amount in question was paid or is liable to be paid in consequence of proceedings enforcing the payment of that amount brought against the claimant by Her Majesty’s Revenue and Customs, or in accordance with an agreement between the claimant and Her Majesty’s Revenue and Customs settling such proceedings” (Finance Act 2003, Schedule 10, Paragraph 34A(7)).

7. Prevailing PracticeUnder Paragraph 34A(8), if the overpayment resulted from a mistake in calculating the tax liability based on the practice generally prevailing at the time, the claim may be denied. This applies unless the amount paid was charged contrary to EU law:

“Case G is where the amount paid, or liable to be paid, is excessive by reason of a mistake in calculating the claimant’s liability to tax, and liability was calculated in accordance with the practice generally prevailing at the time” (Finance Act 2003, Schedule 10, Paragraph 34A(8)).

HMRC’s Pay Now, Check Later Privileges

While reviewing claims for overpaid Stamp Duty Land Tax (SDLT), HMRC operates a “Pay Now, Check Later” system. This means that HMRC may initially accept the payment and the supporting documentation but reserve the right to scrutinize the claim further at a later stage.

However, HMRC also has the discretion to withdraw this “Pay Now, Check Later” privilege on a case. If they choose to do so, the case enters a more formal enquiry process. During this enquiry, HMRC not only examines the procedural correctness of the claim but also evaluates the legal arguments underlying the claim. If HMRC concludes that the legal basis of the claim is flawed—meaning that they believe the claim is not legally valid—they will seek to recover any funds that were initially refunded. This action can lead to a dispute between the claimant and HMRC.

In such cases, if the claimant maintains that their claim is justifiable, the dispute may escalate to an appeal at the First-tier Tax Tribunal. This is the first level of judicial review in the UK tax system, where the merits of the claim will be evaluated in detail.

It is important to note that the withdrawal of “Pay Now, Check Later” privileges and subsequent disputes with HMRC are relatively rare. Most claims are processed and resolved without the need for such escalations. However, when such situations do arise, they can involve complex legal arguments and significant administrative proceedings.

Steps to Claim Overpaid Stamp Duty

At Stamp Duty Advice Bureau, we do our best to make claiming overpaid stamp duty as understandable and efficient as possible.

Step 1: Ensure You Qualify

• Did you purchase the property in the last four years?
• Was it located in England or Northern Ireland?
• Did you pay higher rate stamp duty on a property under £1 million?
• Did the property have hazardous condition issues at the time of purchase?

If you answered “yes” to these questions, you may qualify for a claim.

Step 2: Assess Property Condition
Evaluate the property’s condition at the time of purchase. Identify any health and safety hazards that could qualify the property as to hazardous to occupy. Typical hazards include:

• Damp or mould issues
• Faulty electrical wiring
• Gas problems
• Damaged roof or structural problems

Use the Housing Health and Safety Rating System (HHSRS) to categorize these hazards, focusing on Category 1 (serious risks requiring immediate action) and Category 2 (significant risks).

Step 3: Gather Documentation
Collecting thorough documentation is essential for a successful claim. Ensure you have the following:

• Photographs and/or Videos: Visual evidence of the property’s condition at the time of purchase.
• Inspection Reports: Detailed reports from qualified surveyors or inspectors documenting the hazards if available.
• Contractor Invoices: Invoices or receipts for any repairs or maintenance performed to address the hazards.
• Legal Documents: Copies of essential legal documents such as TR1 (Transfer of Title), SDLT5 (Stamp Duty Land Tax return), the contract of sale, and the completion statement.

Step 4: Submit Claim to HMRC
Submit your claim to HMRC with all the supporting documentation. Here’s how to ensure a clear and comprehensive submission:

• Detailed Explanation: Provide a detailed explanation of the reasons for the claim, highlighting the hazardous condition issues identified and their potential impact on the property’s classification.
• Organised Evidence: Ensure all evidence is well-organised and clearly labelled to facilitate easy review by HMRC.

Step 5: Follow Up
After submitting your claim, we will follow up with HMRC to monitor the progress:

• Regular Check-ins: Maintain regular contact with HMRC to check on the status of your claim.

Key Points to Remember

• Property Hazards: Ensure the property had hazards at the time of purchase that could justify a prohibition notice.
• Sufficient Evidence: The property doesn’t necessarily need to be visibly derelict; hazards like faulty wiring or unserviced gas appliances may be sufficient for a claim.
• Document Everything: Detailed and well-organised documentation is critical for a successful claim.

By following these steps and ensuring thorough documentation, we can help you effectively navigate the process of claiming overpaid stamp duty.

HMRC Payment Policy, Case Merit and Enquiries

As a claimant, your main focus should not be on reducing your Stamp Duty liability, but rather on ensuring that your Stamp Duty Land Tax self-assessment is accurate.

It’s essential that any claim for a refund is made in good faith, supported by sufficient evidence, and that you genuinely believe the claim is justified. For example, if you’ve purchased a property with hazardous condition issues that could have led to a potential prohibition notice from the property’s local authority, it would be reasonable to argue for reclassifying the property from residential to non-residential for Stamp Duty purposes.

It’s also important to be aware that HMRC operates on a ‘pay now, check later’ basis to speed up payment of claims. In our experience, HMRC is very thorough in identifying any procedural issues with submitted claims, such as rejecting a claim because a contract of sale is signed only by the buyer and not the seller.

Based on our insights we believe HMRC’s ‘check later’ primarily refers to HMRC validating the legal arguments behind a claim.

Regarding HMRC’s payment policy, they state:

“If you think you’ve overpaid SDLT, you can apply for a refund.

To process refunds quickly, HMRC will usually make the payment without checking eligibility. However, we reserve the right to withhold payment for revenue protection reasons.

This means that even after a repayment has been made, we have not necessarily agreed that the refund is due. We have up to 9 months to conduct a compliance check on your amended return or claim.

If you receive a repayment that was not due, you must repay it along with any interest. If penalties apply, you will need to pay those as well.”

If you receive a repayment where the amount you claimed was not due, you must pay it back along with any interest due. If penalties apply, you must also pay them. Read more about penalties.”

Ref: gov.uk/guidance/stamp-duty-land-tax-online-and-paper-returns

Other Considerations

Property Classification with Council Tax and Mortgage Lending

Changing the classification of a property for Stamp Duty Land Tax (SDLT) purposes is a matter that exclusively concerns HMRC. It is important to understand that this classification does not influence the property’s classification for other purposes, such as local authority council tax or mortgage lending.

Local Authority Council Tax Classification

Local authorities are responsible for determining the council tax classification of a property. Their primary interest lies in the ongoing use and occupancy of the property, rather than its classification for stamp duty purposes. Here are some key points:

1. Ongoing Use: Local authorities focus on whether the property is being used as a residence. This determines the council tax band and rate, which are based on the property’s use and characteristics rather than its status during a transaction.
2. Occupancy Status: Council tax is typically concerned with whether the property is occupied or vacant. Changes in occupancy can affect council tax rates, such as discounts for empty homes or additional charges for second homes.
3. Service Provision: Local authorities are more interested in the provision of services, such as waste collection and public amenities, which are tied to the residential use of the property.
4. Regulatory Compliance: Local authorities also ensure that properties comply with housing regulations and standards, focusing on health and safety for current residents rather than the classification used during a sale.

Given these factors, local authorities do not consider HMRC’s classification for stamp duty when determining council tax obligations. Their assessment is based on practical and ongoing considerations related to the property’s use and condition.

Mortgage Lenders’ Considerations

Mortgage lenders have their own criteria for assessing properties, which revolve around the risk associated with lending and the potential for resale. HMRC’s classification for stamp duty purposes does not affect these considerations. Here’s why:

1. Property Condition: Lenders are primarily concerned with the current condition of the property. They want to ensure that the property is habitable and in good repair to protect their investment. The property’s condition at the time of purchase, especially if it required significant renovation, is a critical factor.
2. Market Value: Lenders assess the market value of the property to ensure that it provides sufficient collateral for the loan. This valuation is based on current market conditions and the property’s condition, not its stamp duty classification.
3. Resale Potential: Mortgage lenders consider the ease with which the property can be resold in the event of foreclosure. They evaluate factors such as location, demand, and the overall marketability of the property.
4. Legal and Compliance Issues: Lenders also look at any legal issues that might affect the property, including zoning laws, planning permissions, and regulatory compliance. These factors can influence the property’s value and marketability.
5. Insurance and Safety: Mortgage lenders require that the property be insurable and safe for occupancy. They look for issues like structural integrity, safety hazards, and compliance with building codes.