P N Bewley VS HMRC

If you purchased a property in the last four years that had any of the following issues that prevented someone from living there immediately, we may be able to open a case for you!

Case-Law Background

In Bewley v HMRC (2019) the First-tier Tax Tribunal ruled that a bungalow and a plot of land was not suitable for use as a residential dwelling at the effective date of the transaction thus, the higher 3% rates of Stamp Duty Land Tax (“SDLT”) did not apply. This saved the developer a considerable amount on the upfront costs of the residential development. Despite believing the transaction was non-residential, on the SDLT return form, Bewley defined the transaction as residential thus, HMRC launched a review and concluded that a further £6,000 of SDLT was due as the premises should be deemed residential.

Bewley appealed to the FTT.

Bewley argued that the property was not a dwelling as the property:

Had not been occupied since 2014 and had been marketed without photos.
Had undergone a demolition survey (2016) which confirmed the heating system had been removed and asbestos was present which needed to be removed.
Has a mortgage survey (2016) describing the property as a derelict bungalow, in poor internal condition and not mortgageable.

HMRC opined that the property:

Was a residential dwelling as it could either be used/was suitable for use as a single dwelling; or it would be once in the process of being constructed/adapted for such use.
Did not have to be without dilapidations, to be a dwelling by its nature and just because a buyer was unwilling to refurbish a property, did not deem it non-residential.
Is not required to be mortgageable, to be a residential dwelling.
Was residential, in a residential area and was always intended to be residential.
Was deemed residential in the SDLT return.
Has the benefit of a PP which was for continued residential use; and
Had asbestos but that did not prevent re-occupation or renovation.

FTT confirmed as follows:

The effective date of the transaction is the key date therefore, the impact of the refurbishment/demolition works on the residential status were irrelevant; and
The “use test” is clear as either a property is used as a dwelling or it is not thus, it should not be considered whether the property it suitable for, capable of or designed to be used for residential use.

The FTT agreed with HMRC that the dilapidations of a dwelling does not necessarily prevent it from being a dwelling; asbestos does not prevent reoccupation but this was not part of the use test for if the property was a dwelling at the effective date of transaction, HMRC’s points were strongly criticised by the FTT for being incorrect and on some points entirely irrelevant. The decision makes it clear that for the purposes of the higher 3% rates of SDLT the test is whether the building is used as or is suitable for use as a dwelling. When a building was originally built as a dwelling, if it is not suitable for use as a dwelling at the effective date of the transaction the residential rates (including the higher 3% rates of SDLT) cannot apply.

Ongoing Criteria

HMRC have since set out very vague guidelines as to what is considered non-residential and in general have kept extremely quiet about this caselaw. Based on the court information and legal experts, the following criteria has the potential to deem a property as non-residential for the purpose of SDLT:

An issue that is causing a hazard for someone to occupy the property in a safe manner. I.e., Unsafe electrics, Asbestos, Fire hazards, structural issues, Unsafe gas supply, Lead water supply, Rot, Damp, Infestation etc.
A property lacking the necessities required for a legal dwelling. I.e., Lack of kitchen / bathroom /Lack of heating/ running water or electrics etc.

It’s important to note there is a clear distinction between a property requiring modernization and/or minor renovations from a property that is not actually fit to live in. However, if you have purchased property within the last 4 years that you feel may meet these criteria it is worth discussing with one of our advisors to discuss whether you may be able to claim.