A tax tribunal has ruled that buyers Paul and Nikki Bewley do not need to pay the 3% second home surcharge on the purchase of a derelict property that took place in 2017.
Since April 2016 if a buyer already owns a property and purchases another, the stamp duty rates on the second purchase are increased by 3%.
However, the tribunal ruled that uninhabitable properties should not be liable for the surcharge.
When the Bewleys purchased the property in Weston-super-Mare, it had substantial issues with asbestos and did not have central heating. The couple decided to demolish it and build another property in its place.
They paid the standard stamp duty rate of £1,500 on the £200,000 purchase price, but HMRC then asked them to pay the higher rate of £7,500.
HMRC argued that the higher rate was due on properties capable of being used as a dwelling in the future. However, the couple challenged the decision and the tribunal ruled in their favour – holding that the surcharge should only be payable where a property was immediately habitable.
Legal experts believe the case may result in hundreds of claims being made by investors who have purchased uninhabitable homes for renovation since the surcharge came into effect. Rebates could be substantial: on a £750,000 property, the stamp duty charge is £50,000 with the surcharge or just £27,500.00 without it – a difference worth arguing over.
However, what is considered ‘habitable’ will now likely be the subject of debate and with the surcharge substantially boosting tax receipts, HMRC are likely to challenge any claims.
The decision is likely to be welcomed by buy-to-let investors whose profits have suffered under a number of tax changes over the past few years. However, there is still the possibility that HMRC will appeal the decision.