When is a building “suitable for use as a dwelling”?

Higher rates of stamp duty land tax apply when companies acquire dwellings. The new rates were introduced by the Finance Act 2016, which inserted an additional schedule into the Finance Act 2003.  But the word “dwelling” does not have a specialised legal meaning. So when do the higher rates apply? Paragraph 18 of the new schedule 4ZA explains that a building, or a part of a building, is a dwelling if it is used or is suitable for use as a single dwelling, or if it is in the process of being constructed or adapted for such use. And the question that arose in PN Bewley Ltd v The Commissioners for Her Majesty’s Revenue & Customs [2019] UKFTT 0065 (TC) was whether a company that paid £200,000 for a derelict bungalow in poor internal condition had acquired a building that was suitable for use as a dwelling. The property was sold with the benefit of planning permission to demolish the bungalow and erect a replacement building. It still had water, drainage, electricity and gas connections. But some floorboards in the bungalow, and the radiators and pipework, had been removed and there were holes in the walls and ceilings. In addition, the building contained asbestos, which required removal. HMRC argued that a dwelling is still a dwelling even if it falls into dilapidation. The property could have been renovated and re-occupied. The planning permission indicated that the property was to remain a residential property and the company had used a code on the SDLT return that identified it as residential. The company said that the building was not capable of being used as a dwelling as it stood and that renovation – which would disturb the asbestos – was not a viable proposition. Furthermore, the test was whether the building was “suitable” for use as a dwelling at the time of purchase, as opposed to whether it was capable of becoming used as a dwelling in the future. The First-tier Tribunal agreed. The building was not being used as a dwelling when it was sold. So the sole issue was whether the bungalow was “suitable” for such use at the date of completion (as opposed to being designed for, or capable of, such use). And the tribunal agreed that the bungalow was not suitable for use as a dwelling. Paragraph 00365 of HMRC’s Stamp Duty Land Tax Manual states: “If a building is not in use at the effective date but its last use was as a dwelling, it will be taken to be ‘suitable for use as a dwelling’ and treated as residential property, unless evidence is produced to the contrary.” The tribunal acknowledged that this was a reasonable stance. But the company had produced “evidence to the contrary”, which it accepted. In addition, paragraph 2.7 of HMRC’s “Guidance Note” on “Stamp duty land tax: higher rates for purchases of additional residential properties” states that: “’dwelling’ takes its everyday meaning; that is a building, or a part of a building that affords those who use it the facilities required for day-to-day private domestic existence.” And it was the tribunal’s view that such facilities were not present in the bungalow on the completion date. Consequently, the company should not have been required to pay stamp duty land tax at a higher rate.   Allyson Colby, property law consultant