There may be some potential relief for buyers of second properties as the First–tier Tax Tribunal (‘the Tribunal’) have held in a case recently that the higher 3% Stamp Duty Land Tax (“SDLT”) rates did not apply to the purchase of a second property.
In P N Bewley Limited v HMRC  UKFTT 65 (TC) the Tribunal decided that the purchased property – in this case a bungalow and associated plot – was deemed not suitable for use as a dwelling as at the date of completion. Therefore only the regular rate of SDLT was payable. The property was not even considered residential so the non-residential SDLT rates applied.
The Tribunal concluded that the test is not whether the property is capable of becoming use-able as a residence in the future, but whether the property either is used as a residence (“the Use Test”) or suitable for use as a residence (“the Suitability Test”) at the effective date of the transaction.
The Use Test is a convenient starting point because of the binary nature of the response – either it is used as a dwelling or it is not. In this particular instance, as the property was vacant (and in fact was scheduled for demolition) the Tribunal then had to deploy the Suitability Test of the property as a dwelling.
To apply the Suitability Test the Tribunal had the benefit of contemporaneous photographic evidence and expert witness evidence from a Surveyor. The Tribunal held, looking at the evidence in front of it that this property failed the Suitability Test for residential property as:-
- it had been vacant for several years;
- the deterioration during the vacant period had resulted in the removal of heating, copper pipes and floorboards;
- asbestos was present whose removal would require a virtual dismantling of the property;further surveys and valuation reports described the property as “a derelict bungalow”.
The Use Test and Suitability Tests are important benchmarks to keep in mind when purchasing residential property. The focus, it seems, is not on the intention of the original builder for the use of the property or even the intention of the purchaser to develop it as such. Rather, it is upon whether the property is or can be used as a residence at the time of completion.
A survey is normally advisable for any reasonable purchaser if only because conveyancers tend not to give advice on the physical aspect of properties. A survey report would usually include photographs for reference and it would appear that buyers could now be encouraged to keep their own informal photographic schedule of condition – the decision does mention that the Buyers’ photos from a mobile phone were helpful.
Investors and serial house buyers should probably keep their champagne on ice for the time being. It is probably not a good idea to start tearing out the copper pipes and ripping up the floorboards as the completion date approaches.
The circumstances of this case and the state of the property were very specific and it seems unlikely that the additional 3% rate of SDLT can be successfully avoided on these grounds on a regular basis. It would be prudent to wait until the decision is tested again possibly in a case where there is not planning permission for demolition already in place.