Why understanding definitions of habitability is important for stamp duty purposes.

If we assume that the main goal for any taxpayer is to pay the correct amount of tax, then understanding whether a property is habitable at the time of purchase for stamp duty purposes is important for determining the accurate stamp duty liability.

If you have the option to interpret the law in two ways regarding your tax liability, you should choose the interpretation that legally minimizes your stamp duty liability. For instance, if a property was initially assessed as residential for stamp duty but later discovered to be non-residential, the law allows you to reassess it as non-residential under certain conditions. This reassessment can significantly lower your stamp duty liability, especially if you’re a property investor or own a property worth over £1 million. The principle is straightforward: pay only the tax you owe according to the law, and not more.

Understanding the UK government’s definitions of habitability is helpful for knowing your rights under the law. This article will explain what habitability means, both legally and practically.

Background on Habitability

To understand habitability, we must begin with the meaning of a dwelling.

This is laid out in the Finance act 2003 Schedule for a: meaning of a dwelling.
https://www.legislation.gov.uk/ukpga/2003/14/schedule/4A/crossheading/meaning-of-dwelling

The legislation states

Meaning of “dwelling”

7(1)This paragraph sets out rules for determining what counts as a dwelling for the purposes of this Schedule.

(2)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.

What does this mean? The term “dwelling” for the purposes of this Schedule refers to any building or part of a building that is either currently used, suitable for use, or in the process of being constructed or adapted to be used as a single residence.

(3)Land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land) is taken to be part of that dwelling.

What does this mean? For the purposes of this Schedule, any land that is, or will be, used or enjoyed as part of a garden or grounds of a dwelling, including any buildings or structures on that land, is considered to be part of the dwelling. This means that the garden or grounds are treated as integral to the residence itself.

(4)Land that subsists, or is to subsist, for the benefit of a dwelling is taken to be part of the dwelling.

What does this mean? For the purposes of this Schedule, any land that currently provides, or will provide, benefit to a dwelling is considered part of that dwelling. This includes land that supports the use and enjoyment of the residence, treating it as an integral component of the property.

(5)The subject-matter of a transaction is also taken to include an interest in a dwelling if—

(a)substantial performance of a contract constitutes the effective date of that transaction by virtue of a relevant deeming provision,

(b)the main subject-matter of the transaction consists of or includes an interest in a building, or a part of a building, that is to be constructed or adapted under the contract for use as a single dwelling, and

(c)construction or adaptation of the building, or part of the building, has not begun by the time the contract is substantially performed.

What does this mean? For the purposes of this Schedule, a transaction is considered to include an interest in a dwelling if:
(a) the effective date of the transaction is determined by substantial performance of the contract under a relevant legal provision;
(b) the main focus of the transaction includes an interest in a building, or part of it, that is planned to be constructed or adapted for use as a single dwelling according to the contract; and
(c) the construction or adaptation of the building, or part of it, has not started by the time the contract is substantially performed.

[F2(6)In sub-paragraph (5)—

“contract” includes any agreement;

“relevant deeming provision” means any of sections 44 to 45A, paragraph 5(1) or (2) of Schedule 2A or paragraph 12A or 19(3) of Schedule 17A.]

(7)A building or part of a building used for a purpose specified in section 116(2) or (3) is not used as a dwelling for the purposes of sub-paragraph (2) or (5).

What does this mean? For the purposes of certain tax rules, any agreement counts as a contract. Specific sections of the law (sections 44 to 45A, paragraph 5(1) or (2) of Schedule 2A, and paragraph 12A or 19(3) of Schedule 17A) determine when a transaction is considered complete. Buildings used for commercial, industrial, or public service purposes, as listed in section 116(2) or (3), are not considered dwellings under these rules. Thus, such buildings are excluded from being classified as homes for tax purposes.

(8)Where a building or part of a building is used for a purpose mentioned in sub-paragraph (7), no account is to be taken for the purposes of sub-paragraph (2) of its suitability for any other use.

What does this mean? If a building or part of a building is used for a commercial, industrial, or public service purpose as specified in sub-paragraph (7), it should not be considered suitable for use as a dwelling under sub-paragraph (2). Essentially, even if the building could theoretically be used as a home, its current use for those specified purposes excludes it from being classified as a dwelling for the purposes of the legislation.

If a property is not a dwelling, it should not be assessed as residential for stamp duty purposes. So understanding the meaning of the dwelling is important. 

If a dwelling is not habitable

Recapping, a dwelling is somewhere someone can reside. If a dwelling is not habitable, then from a stamp duty point of view it should not be assessed as residential. Under certain circumstances, non-residential stamp duty liability is lower than residential stamp duty. This is the case for property investors purchasing an additional property, or homeowners purchasing an additional property. If the purchaser is a non-UK tax resident, they are subject to an additional 2% stamp duty liability on top of the 3% stamp duty liability for an additional home.

If a property purchase is for more than £1 million, the non-residential rate of stamp duty are lower than residential rates for owner occupiers.

Therefore, if your stamp duty liability is lower because you can legally assess as non-residential for stamp duty purposes, it makes financial sense to do so since you are legally entitled to do this. 

Legal framework that governs habitability in the UK

The UK’s legal framework for habitability is designed to ensure that all residential properties meet essential standards of safety, health, and suitability for living. Central to this framework are several key pieces of legislation that collectively aim to guarantee that homes are decent and free from hazards. These laws emphasise the importance of structurally sound, weatherproof homes that provide a reasonable degree of thermal comfort and are equipped with modern facilities in a good state of repair.

A common thread running through these legislative measures is the focus on identifying and eliminating hazards that pose risks to the health, safety, and well-being of occupants. Notably, the Housing Health and Safety Rating System (HHSRS) under the Housing Act 2004 assesses specific hazards such as damp, mould, excessive cold, fire risks, and structural defects. Together with the Homes (Fitness for Human Habitation) Act 2018 and the Landlord and Tenant Act 1985, these regulations establish clear responsibilities for landlords to maintain their properties, empower local authorities to enforce compliance, and protect tenants’ rights to safe and habitable housing.

1. Housing Act 2004

• Housing Health and Safety Rating System (HHSRS):
  • This system assesses the potential risks to health and safety from any deficiencies identified in dwellings. It focuses on 29 potential hazards, ranging from damp and mould growth to structural collapse and overcrowding.
  • Sections 20 and 21: These sections empower local authorities to issue prohibition notices if Category 1 or Category 2 hazards are found in a property, effectively preventing occupation until the hazards are addressed.

2. Homes (Fitness for Human Habitation) Act 2018

• This act amends the Landlord and Tenant Act 1985, requiring that residential rented accommodation in England and Wales is provided and maintained in a state fit for human habitation.
• It imposes an obligation on landlords to ensure their properties are safe, healthy, and free from serious hazards.
• Tenants have the right to take legal action against landlords who fail to maintain properties in a habitable state.

3. Landlord and Tenant Act 1985

• Section 8: Originally set out the landlord’s responsibilities for repairs to ensure habitability.
• Section 11: Specifies the landlord’s duty to keep in repair the structure and exterior of the dwelling, and to keep in proper working order the installations for the supply of water, gas, electricity, sanitation, space heating, and heating water.

4. Environmental Protection Act 1990

• Statutory Nuisance: Local authorities can take action against landlords if a property is found to be prejudicial to health or a nuisance under this act. This includes issues such as damp, mould, and infestations.

5. Building Regulations

• Building regulations set out standards for the design and construction of buildings to ensure the safety and health for people in or around those buildings. These regulations cover aspects such as structural integrity, fire safety, damp-proofing, ventilation, and hygiene.

6. Public Health Acts

• These acts give local authorities the power to address housing conditions that may pose a threat to public health, such as issues with water supply, sanitation, and ventilation.

7. Housing Act 1985

• Provides local authorities with the power to improve housing conditions, including the ability to provide grants for repairs and to ensure that housing meets certain standards.

8. Regulatory Reform (Fire Safety) Order 2005

• This order requires landlords to ensure fire safety in the properties they rent out, including providing smoke alarms, fire extinguishers, and ensuring that escape routes are kept clear.

Overview of HMRC guidance on classifying properties for stamp duty purposes.

HMRC classifies properties as residential or non-residential based on whether they can legally be considered a dwelling. This classification affects the Stamp Duty Land Tax (SDLT) rates applied to property transactions.

Non-Residential Rates

Non-residential properties and mixed-use dwellings are sometimes  subject to lower SDLT rates:

• Up to £150,000: 0%
• £150,001 to £250,000: 2%
• Above £250,000: 5%

Residential Rates

Residential properties, particularly those for property investors and owner-occupiers purchasing over £1 million, have higher SDLT rates. These rates apply if the property is the only residential property owned:

• Up to £250,000: 0%
• £250,001 to £925,000: 5%
• £925,001 to £1.5 million: 10%
• Above £1.5 million: 12%

Additional Surcharge:

• If the buyer owns another residential property, an extra 3% is added to the above rates.

 SDLTM00385 guidance.

HMRC guidance SDLTM00385 states that a property is only considered uninhabitable, and thus not suitable as a dwelling, if it is so damaged that normal repairs, replacement, or modernization cannot make it liveable. This applies to a minority of buildings. A clear distinction is made between derelict properties and those needing renovation but structurally sound. 

A property previously used as a dwelling, retaining structural integrity, and with existing residential permission is still considered a dwelling even if not immediately habitable. Common repair issues like temporary removal of facilities, substantial repairs, system replacements, pest infestations, and flood damage do not render a property uninhabitable. 

However, properties with severe issues such as high levels of asbestos, radioactive pollution, potential wall collapse, or hazards that would prompt a prohibition notice are considered unsuitable for use as dwellings.

The following is guidance from HMRC regarding habitable property: 

SDLTM00385 – Scope: what is chargeable: land transactions: Residential Property– – Not suitable for use as a dwelling (uninhabitable dwellings)

Whether a property has deteriorated or been damaged to the extent that it no longer comprises a dwelling is a question of fact and will only apply to a small minority of buildings. A property might not be considered “suitable for use” as a dwelling (sometimes referred to as uninhabitable) on the basis that it has been damaged to the extent that normal repair work, replacement or modernisation cannot resolve the issues.

What does this mean? A property is considered uninhabitable and not suitable as a dwelling if it is so extensively damaged that normal repairs, replacement, or modernisation cannot make it livable, which applies only to a small minority of buildings.

However, there is a clear distinction between a derelict property and a dwelling that is in need of modernisation, renovation or repair, which can be completed without first addressing structural defects that would make the property dangerous to work on and or live in. 

If the building was used as a dwelling at some point previously, it is fundamentally capable of being so used again (there being no lack of structural or other physical integrity preventing this). 

If permission to use as a dwelling continues to exist at the effective date of transaction, a building will be considered suitable for use as a dwelling, even if not ready for immediate occupation.

What does this mean? A property is considered suitable for use as a dwelling, even if not ready for immediate occupation, as long as it was previously used as a dwelling, retains structural integrity, and does not require addressing dangerous structural defects before renovation.

Examples of repairs, renovations and issues that will not make a property unsuitable for use as a dwelling include, but are not limited to:

• The temporary removal of bathroom or kitchen facilities before sale.

• Substantial repairs required to windows, floors, or a roof.

• Replacement boiler and pipework or

• Unsafe electrical wiring.

• The need to switch services back on.

• An infestation of pests.

• Damp proofing required or plasterboard damage.

• Flood damage.

These are all common issues which can be rectified relatively quickly and constitute common improvements and/or maintenance attached to residential properties. 

They do not constitute structural changes to the dwelling that would mean the building is no longer suitable for use as a dwelling.

What does this mean? Repairs and issues like temporary removal of facilities, substantial repairs, replacement systems, unsafe wiring, service reconnections, pest infestations, damp proofing, and flood damage do not render a property unsuitable as a dwelling, as they can be rectified relatively quickly and are considered routine maintenance.

Examples of when a property will be considered not suitable for use as a dwelling include:

What does this mean? HMRC consider properties with the following problems as non-residential for stamp duty purposes.

Where repair work cannot be undertaken safely because of high levels of asbestos that cannot be removed without deconstructing the property.

What does this mean? This is a reference to the first Tier tax Tribunal case PN Bewley V HMRC where The property had to be demolished because of asbestos is present in the property.

Where there is high radioactive pollution present.

What does this mean? Many properties have high radon exposure, which increases risk of cancers.

Where there is a high probability of walls collapsing.

What does this mean? If a property is structurally unsound and may collapse, the property is dangerous and should not be occupied.

Where there are hazards present that would cause a local authority to issue a prohibition notice restricting use of the premises.

What does this mean? If a property has condition hazards such as damp, mould, dangerous electrics and so on, the property should be considered as non-residential for stamp duty purposes. We will discuss this in greater detail next.

The Housing Act 2004 and Its Significance

The Housing Act 2004 is a comprehensive piece of legislation aimed at improving housing conditions and ensuring the safety and well-being of occupants. It provides a framework for identifying, assessing, and mitigating hazards in residential properties to protect tenants from substandard living conditions. 

One of the Act’s primary tools for achieving these goals is the Housing Health and Safety Rating System (HHSRS), which assesses risks in homes and identifies necessary improvements to make properties safe and habitable.

HMRC Guidance and the Housing Act 2004

HMRC guidance, specifically SDLTM00385, highlights that a property may be considered unsuitable for use as a dwelling if it has significant hazards that could lead to a local authority issuing a prohibition notice under the Housing Act 2004.

Sections 20 and 21: Prohibition Notices and Their Implications

Section 20: Prohibition Orders for Category 1 Hazards

• Category 1 Hazards: These are serious hazards that pose an immediate and significant risk to the health and safety of occupants.
• Prohibition Orders: When a Category 1 hazard is identified, local authorities can issue a prohibition order, which can restrict the use of part or all of a property until the hazard is resolved.
• Implications: Prohibition orders for Category 1 hazards mean that the affected areas cannot be legally occupied, forcing property owners to undertake necessary repairs or improvements to remove the hazard and make the property safe.

Section 21: Prohibition Orders for Category 2 Hazards

• Category 2 Hazards: These hazards are less severe than Category 1 but still pose a considerable risk to occupants’ health and safety.
• Prohibition Orders: Local authorities have the discretion to issue prohibition orders for Category 2 hazards if deemed necessary.
• Implications: Similar to Category 1, these orders prevent the use of the hazardous part of the property until corrective actions are taken, potentially displacing occupants temporarily and imposing financial burdens on landlords for repairs.

Role of Local Authorities in Enforcing Habitability Standards

Local authorities enforce these standards set by the Housing Act 2004, ensuring that residential properties are safe and habitable. Their responsibilities include:

Inspections and Assessments

• HHSRS Inspections: Local authorities use the HHSRS to conduct thorough inspections of residential properties, identifying potential hazards and assessing their severity.
• Identification of Hazards: Through these inspections, local authorities can identify both Category 1 and Category 2 hazards that may compromise the safety and well-being of occupants.

Enforcement Actions

• Issuing Prohibition Notices: Upon identifying serious hazards, local authorities can issue prohibition notices under Sections 20 and 21, restricting the use of dangerous parts of a property until the issues are resolved.
• Improvement Notices: Besides prohibition notices, local authorities can issue improvement notices that require landlords to address specific hazards within a set timeframe.

Housing Health and Safety Rating System (HHSRS)

The Housing Health and Safety Rating System (HHSRS) is a tool used by local authorities to assess and ensure the safety and health standards of residential properties. Introduced under the Housing Act 2004, the HHSRS provides a structured framework for identifying and evaluating potential hazards in homes that could affect the well-being of occupants.

What is the HHSRS?

The HHSRS is a risk-based assessment system that evaluates residential properties against a set of 29 potential hazards. These hazards range from physical issues like damp and mould growth to risks related to fire safety, structural integrity, and thermal comfort. The primary goal of the HHSRS is to identify and mitigate these hazards to ensure that homes are safe, healthy, and suitable for habitation.

Key Components of the HHSRS

1. Hazard Identification: The HHSRS categories hazards into 29 different types, including issues such as damp and mould growth, excess cold, falls on stairs, and fire risks. Each hazard is assessed based on its potential to cause harm.
2. Risk Assessment: For each identified hazard, the HHSRS evaluates the likelihood of an occurrence and the potential severity of harm. This assessment considers the occupants’ age, health, and other factors that might influence their vulnerability to specific hazards.
3. Scoring System: The HHSRS uses a numerical scoring system to quantify the severity of hazards. Hazards are scored based on the likelihood of an incident occurring within a year and the potential harm it could cause. This scoring helps prioritise which hazards need urgent attention.
4. Category Classification: Hazards are classified into two categories:
   • Category 1 Hazards: These are serious hazards that pose an immediate and significant risk to health and safety. Local authorities are required to take action to mitigate these hazards.
   • Category 2 Hazards: These are less severe but still pose a considerable risk. Local authorities have the discretion to act on these hazards based on their judgement and available resources.

How Local Authorities Use the HHSRS

1. Inspections: Local authorities conduct inspections of residential properties using the HHSRS framework. These inspections are often triggered by tenant complaints, routine checks, or as part of licensing schemes for houses in multiple occupation (HMOs).
2. Assessment and Scoring: During inspections, local authority officers identify potential hazards and assess them using the HHSRS scoring system. This involves evaluating the likelihood and severity of each hazard and assigning a score that reflects its risk level.
3. Decision Making: Based on the HHSRS assessment, local authorities decide on the appropriate course of action. For Category 1 hazards, they are obliged to take action, which may include issuing improvement notices, prohibition notices, or emergency remedial action. For Category 2 hazards, authorities decide whether to act based on the specific circumstances and available resources.
4. Issuing Prohibition Notices: When serious hazards (Category 1) are identified, local authorities can issue prohibition notices under Sections 20 and 21 of the Housing Act 2004. These notices restrict the use of part or all of a property until the identified hazards are rectified. This ensures that tenants are not exposed to dangerous living conditions.
5. Follow-Up and Enforcement: After issuing notices, local authorities follow up to ensure compliance. They may conduct re-inspections to verify that the necessary improvements have been made and that the property is now safe for habitation.

4. Common Condition Hazards

• List and describe common condition hazards identified by HHSRS.
  • Category 1 Hazards: Serious risks requiring immediate action.
  • Category 2 Hazards: Less immediate but still significant risks.
• Provide examples of each category with detailed explanations.

HHSRS condition hazards

When assessing habitability for stamp duty purposes, people often focus on the degree of dereliction or how unmodernised a property is. 

While this can be relevant for HMRC considerations, it’s important to focus on condition hazards since they will be most commonplace in properties. 

 The Housing Health and Safety Rating System (HHSRS) identifies specific hazards that impact the health, safety, and well-being of occupants, irrespective of the property’s modernization status. 

Even if a property is not derelict, it can still have significant hazards that make it unsuitable for habitation. These hazards can range from damp and mould growth to structural issues and inadequate heating, all of which pose serious risks to residents.

Category One Hazards (Ordered by Likelihood of Occurrence in an Un-Renovated Property)

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

Category Two Hazards (Ordered by Likelihood of Occurrence in an Un-Renovated Property)

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

The P N Bewley Ltd v Revenue & Customs Case: Key Principles and Arguments

Overview of the Case

The P N Bewley Ltd v Revenue & Customs case is a landmark decision in the context of Stamp Duty Land Tax (SDLT) that has set important legal precedents regarding the classification of properties based on their habitability. This case has significantly influenced the ability to reclaim overpaid SDLT based on the habitability of the property at the time of purchase.

Key Legal Principles Behind the P N Bewley Ltd v Revenue & Customs Victory Against HMRC

Definition of “Dwelling”:

The primary legal principle in the case revolved around the definition of what constitutes a “dwelling” for Stamp Duty Land Tax (SDLT) purposes. The court focused on whether the property was “suitable for use as a dwelling” at the time of purchase.

Condition and Habitability:

A critical argument was that the property, a bungalow in this instance, was not habitable due to its severe state of disrepair. The court found that the property’s condition rendered it unsuitable for use as a dwelling, which is a significant departure from simply being in a state of disrepair.

Structural and Environmental Hazards:

The court considered various condition hazards present at the property, such as the presence of asbestos, removal of the heating system, and overall structural issues. These hazards made the property unsafe and unsuitable for habitation, aligning with the Housing Health and Safety Rating System (HHSRS) criteria used by local authorities.

Planning Permissions and Future Intentions:

The existence of planning permission to demolish the existing structure and build a new dwelling was also considered. The court concluded that the future intent to develop the property did not alter the fact that, at the point of transaction, the property was unsuitable for use as a dwelling.

Precedent for Non-Residential Classification:

This case set a legal precedent that properties unfit for habitation due to severe condition hazards should be classified as non-residential for SDLT purposes. This classification allows property purchasers to reclaim overpaid SDLT if it was initially assessed at a higher residential rate.

Relevance of Evidence:

The court emphasised the importance of presenting evidence such as structural surveys, demolition reports, and photographic documentation to substantiate claims of uninhabitability. In this case, detailed evidence provided by P N Bewley Ltd was crucial in proving that the property was not suitable for use as a dwelling.

Interpretation of “Suitability”:

The court interpreted “suitable for use as a dwelling” not merely as the presence of basic living facilities but also the overall safety and habitability of the property. This interpretation aligns with broader health and safety standards, ensuring that only properties that are genuinely safe and livable are classified as residential.

Impact on SDLT Reclaims:

The ruling has significant implications for SDLT reclaims, as it provides a clear legal basis for reclassifying properties with substantial condition hazards. This allows for potential SDLT savings for purchasers who can demonstrate that their property was uninhabitable at the time of purchase.

Conclusion

Understanding the definition of habitability from a stamp duty perspective is crucial for property owners and investors. It provides clarity on whether a property should be classified as residential or non-residential, significantly impacting the stamp duty liability. By thoroughly comprehending these definitions, property buyers can ensure they are paying the correct amount of tax, potentially reclaiming overpaid stamp duty if their property was incorrectly assessed as habitable.

This article has outlined the essential aspects of habitability, the relevant legislation, and HMRC guidance. Recognizing the importance of condition hazards and the legal precedents set by cases like P N Bewley Ltd v Revenue & Customs, property owners can make informed decisions about their stamp duty obligations. If there are any concerns or uncertainties regarding the habitability of a property, seeking professional legal and tax advice is highly recommended to navigate these complex issues effectively. Understanding and applying these principles can lead to significant financial savings and compliance with the law.

Appendices and References

Appendix A: Key Legislation

1. Housing Act 2004
   • Housing Health and Safety Rating System (HHSRS): Assesses risks to health and safety from deficiencies in residential properties. Covers 29 hazards including damp, mould, fire risks, and structural collapse.
   • Sections 20 and 21: Prohibition orders for Category 1 and Category 2 hazards to ensure properties are safe for habitation.
2. Homes (Fitness for Human Habitation) Act 2018
   • Section 1: Requires residential rented accommodation to be provided and maintained in a state fit for human habitation.
   • Section 9A: Empowers tenants to take legal action against landlords failing to maintain habitable conditions.
3. Landlord and Tenant Act 1985
   • Section 8: Outlines landlords’ responsibilities for repairs to ensure habitability.
   • Section 11: Specifies landlords’ duty to keep in repair the structure and exterior of the dwelling and installations for water, gas, electricity, sanitation, and heating.
4. Environmental Protection Act 1990
   • Statutory Nuisance: Allows local authorities to take action against landlords if a property is prejudicial to health or a nuisance, including issues like damp, mould, and infestations.
5. Building Regulations
   • Design and Construction Standards: Ensures buildings are safe and healthy, covering aspects such as structural integrity, fire safety, damp-proofing, ventilation, and hygiene.
6. Public Health Acts
   • Powers for Local Authorities: Address housing conditions threatening public health, including water supply, sanitation, and ventilation.
7. Housing Act 1985
   • Improvement of Housing Conditions: Local authorities’ power to provide grants for repairs and ensure housing meets certain standards.
8. Regulatory Reform (Fire Safety) Order 2005
   • Fire Safety Requirements: Ensures landlords provide smoke alarms, fire extinguishers, and clear escape routes.

Appendix B: HMRC Guidance

1. SDLTM00385: Scope: What is Chargeable: Land Transactions: Residential Property
   • Defines when a property is not suitable for use as a dwelling.
   • Provides examples of repairs and issues that do not render a property uninhabitable.
   • Highlights circumstances where a property is considered uninhabitable, such as severe asbestos presence, radioactive pollution, structural collapse risks, and local authority prohibition notices.
2. Stamp Duty Land Tax (SDLT) Rates
   • Non-Residential Rates:
     • Up to £150,000: 0%
     • £150,001 to £250,000: 2%
     • Above £250,000: 5%
   • Residential Rates:
     • Up to £250,000: 0%
     • £250,001 to £925,000: 5%
     • £925,001 to £1.5 million: 10%
     • Above £1.5 million: 12%
     • Additional 3% surcharge if the buyer owns another residential property.

Appendix C: Legal Cases and Precedents

1. P N Bewley Ltd v Revenue & Customs
   • Established that properties unfit for habitation due to severe condition hazards should be classified as non-residential for SDLT purposes.
   • Key principles:
     • Definition of “dwelling” for SDLT.
     • Condition and habitability.
     • Structural and environmental hazards.
     • Relevance of planning permissions and future intentions.
     • Importance of evidence in proving uninhabitability.

References

1. Housing Act 2004: https://www.legislation.gov.uk/ukpga/2004/34/contents
2. Homes (Fitness for Human Habitation) Act 2018: https://www.legislation.gov.uk/ukpga/2018/34/enacted
3. Landlord and Tenant Act 1985: https://www.legislation.gov.uk/ukpga/1985/70
4. Environmental Protection Act 1990: https://www.legislation.gov.uk/ukpga/1990/43/contents
5. Building Regulations 2010: https://www.legislation.gov.uk/uksi/2010/2214/contents/made
6. Public Health Act 1936: https://www.legislation.gov.uk/ukpga/Geo6/1/49/contents
7. Housing Act 1985: https://www.legislation.gov.uk/ukpga/1985/68/contents
8. Regulatory Reform (Fire Safety) Order 2005: https://www.legislation.gov.uk/uksi/2005/1541/contents/made
9. HMRC SDLT Manual (SDLTM00385): https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00385
10. P N Bewley Ltd v Revenue & Customs Case Summary: https://www.bailii.org/uk/cases/UKFTT/TC/2019/TC06951.html