Legal ruling finds uninhabitable properties are not liable for stamp duty surcharge

Since April 2016 an additional 3% stamp duty charge has been imposed on buyers purchasing a second home. Irrespective of the circumstances.

However, following a recent landmark case, buyers purchasing a derelict property could now be exempt from paying this second-home tax.

A tax tribunal, heard earlier this year, found in favour of Paul and Nikki Bewley, who had purchased a derelict bungalow in Weston-Super-Mare for £200,000. The property was purchased as a buy-to-let investment however the bungalow was riddled with asbestos and in such poor condition that the couple demolished it to build a new home in its place.

The Bewleys paid the normal rate of £1,500 in stamp duty on purchase in January 2017 mistakenly believing that as the property was uninhabitable they were not liable for the 3% second-home tax.

HMRC argued that a buyer should be liable for the higher rate of stamp duty if a property was capable of being used as a dwelling in the future and therefore the Bewleys should have paid the additional 3% surcharge of £6,000.

The tribunal disagreed with HMRC and found in favour of the Bewleys who represented themselves. It said that the 3% surcharge should only be levied if the home was suitable for immediate habitation.

This case sets a precedent that suggests that an exemption exists for buy-to-let investors looking to avoid the 3% stamp duty surcharge, as the ruling indicates that by buying a property that is derelict or uninhabitable, the surcharge doesn’t apply.

This case could open the door for hundreds of retrospective claims from buy-to-let investors who have paid the additional charge for the purchase of properties which required significant renovation.

HMRC has not yet decided whether to appeal, with a spokesperson saying “We are considering the judgment carefully.”

As the ruling could open the floodgates for homebuyers reclaiming millions of pounds in paid stamp duty on the purchase of uninhabitable properties, it’s likely that HMRC are considering the judgement very carefully indeed.