Additional Derelict Dwellings Not Liable For SDLT Surcharge

Derelict, uninhabitable properties have never looked so appealing for property investors as a recent ruling means that additional property bought in terrible conditions could bypass the current excess stamp duty land tax surcharge (SDLT) of 3%.

The 3% surcharge on additional dwellings has been lucrative for the government since its introduction in 2016, with £4.9 billion being claimed during this time.

However, an asbestos filled wreck of a bungalow bought as a buy-to-let investment by Paul and Nikki Bewley in January 2017 for £200,000 has opened up a potential loophole that could save investors considerable amounts of money by circumventing the legal obligation of paying the surcharge according to experts.

Following the purchase of their investment home in 2017, the owners paid the normal rate of £1,500 in SDLT. HM Revenue and Customs later claimed that the couple were liable to pay in excess of £7,500 in SDLT when the surcharge was applied.

Following a tribunal decision, it has been established that the remit for claiming the surcharge depends on whether the property is immediately habitable upon completion.

The official Housing Act of 1957 dictates that a habitable property is one in which a functioning toilet, bathing and cooking facilities are available to the occupier.

In the case of the Bewley property, the asbestos filled dwelling lacking central heating made habitation dangerous.

This case will mean that a significant number of investors will benefit from the new boundaries regarding the surcharge which will be bitter sweet to HMRC as around half (£1.68 billion) of all SDLT revenue (£3.8 billion) was squeezed from additional dwellings in 2018.

Additionally, owners of additional properties that sell their excess dwellings within three years of paying the surcharge could be able to claim a refund on the additional tax they paid if the one main residence is replaced with another main residence. As more investors exit the buy-to-let sector, refund claims have increased from £196 million in 2017 to £385 million by the end of 2018.

David Hannah, principal consultant at Cornerstone tax consultancy, said: “An awful lot of people will have voluntarily overpaid on their tax and will now seek to claw it back,”

“Clearly no one would want to live in a house that does not have a toilet. But I might be content to live in a house that had limited cooking facilities.

“I expect HMRC to challenge people wherever they can. There’s a great deal of money in this. If you have bought a piece of land worth £3.5 million, the 3 per cent stamp duty surcharge is £105,000.”

Laura Suter, a personal finance analyst at AJ Bell, a wealth manager, said: “Buy-to-let investors have been hit by a succession of tax changes in recent years, which has affected their profitability and made it harder for many to generate a decent income from property investment.

“This case opens up an interesting loophole for buy-to-let investors who want to avoid the 3 per cent surcharge on the stamp duty they pay and is likely one that many will leap on. The ruling means that by buying a property that is derelict or uninhabitable, buyers can avoid this surcharge.”

Will this latest tribunal decision encourage more investors to purchase derelict property? Will this increase the buy-to-let sector?


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    Having spoken to an SDLT expert I have been told this: “It’s still not cut and dry though, the requirements for dereliction are quite specific. I had to advise a client recently that he couldn’t benefit as his purchase wasn’t derelict enough!”

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    we bought a derelict property last July and paid the excess 3%; the property was accepted as not being habitable by the ratings officer and as a result we are not paying rates / council tax on the property until it is deemed habitable. Is this ruling on rates a relevant factor in our discussions with HMRC – logically one can’t say it’s habitable for the purpose of stamp duty but not for council tax?? Any thoughts?

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    This is very interesting.
    My partner and purchased our first BTL property on Feb 19 and paid the 3% surcharge.
    The house was suffering from dampness in the living room – which was confirmed (verbally to the agent) by a damp specialist. In fact, the previous buyer pulled out due to the damp issue.
    Once we completed we found dampness in the kitchen – which was traced to the bathroom – a leak that had also caused wet rot in the bathroom. Also, the toilet was not fixed to the floor an leaking – so needed removing and resetting.
    It also failed an electrical safety test – so we had to carry out works to achieve a pass – post purchase.
    All of this meant the property was not habitable/lettable – and took 10-11 weeks to repair the damp/rot/elecs etc and let out – via same agent who were ready to go with a tenant.

    Would this be considered derelict enough to make a case to reclaim the surcharge?

    Any info would be greatly appreciated!

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    Result!! We paid the supplementary duty last July; in Sept we managed to get the valuation office to accept that council tax was not due as the property was not habitable. Following reading about this case we wrote to HMRC requesting a refund plus to pay non-residential duty. We also sent a copy of the valuation office decision. Yesterday, after just 6 weeks we received a cheque for more than £7K without question.

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