The following case governs the ruling of First Tier Tribunal (FTT or the Tribunal) regarding a refund claim on a derelict property in P N Bewley LTD v The Commissioners for Her Majesty’s Revenue & Customs TC06951.
The tribunal ruled the property as unfit for human occupation at the time of transaction and such properties are not dwellings therefore a refund of SDLT was due on the appellant.
Facts About The Case
The brief facts of the case are:
The owner of the property submitted to HMRC that the property is derelict and furnished various reports substantiating their claim. It included a planning permission mentioning the property as “Demolition of existing dwelling and erection of replacement building”.
From the demolition survey issued on 13 December 2016 commissioned by the appellant and prepared by Philip Love of Enfield Group Ltd, it is mentioned that:
- Asbestos-containing materials has been identified during the Demolition Survey
- The asbestos materials identified were in ‘good condition’ with risk scores of 3 to 6 (out of 10). The recommendation for these materials was ‘urgent removal’.
- ‘Building Notes’ showed that the heating system had been removed and the remains of hessian insulation was still under the floorboards.
- The survey was a ‘disruptive, fully intrusive survey that involves destructive application techniques…. involving breaking into floors, through walls void ceilings…’.
- Asbestos materials might remain identified buried in the fabric.
The appellant for financing of the property obtained a valuation report conducted by Lloyds Bank agent valuator which mentioned in its report ‘the existing property is a derelict bungalow in poor internal condition, which we understand is to be demolished…’ under condition and state of repair, it reads, ‘the existing property is in a poor state of repair and condition and will be demolished…’
HMRC in a letter dated 19 February 2018 dismiss the claims of the appellant and report that the property was being marketed as an “ideal refurbishment project” in September 2014.
SDLT Return
The appellant had listed the property as residential in the SDLT form and paid £1,500. HMRC gave their conclusion of their inquiry that an additional £6,000 SDLT was due.
The appellant appealed against the inquiry and amendment to the return and reasserted the property was not habitable at time of purchase and unviable as a renovation or refurbishment.
HMRC indicated that the initial inquiry was under review. Later an officer for the HMRC reviewed the decision and concluded that the determination listed in the earlier report be upheld. That was said to be a “determination” in the amount of £6,000.
HMRC Challenge
HMRC contended that the building qualified within the meaning of “residential property” for the purposes of s 55 FA 2003. They contended that since plot was a residential plot in a residential area; and the intention was always for the plot to continue to be a residential plot comprising a dwelling and its grounds. It increased the SDLT payable amount based on their interpretation from £1,500 to £7,500 with addition of 3% surcharge.
HMRC further stressed on their claim that,
- A building under construction for use as a dwelling comes within the definition.
- The appellant used a code on the SDLT return which identified it as residential.
- The fact that no buyer could be found to refurbish it did not mean the property ceased to be a dwelling or was not capable of being renovated and occupied as a dwelling.
- The planning permission was indicative of the intention that the property was to remain a residential property.
- This “course of action” was a commercial decision and does not indicate that the existing property was not capable of being utilised as a dwelling.
- The presence of asbestos in the existing building did not prevent its renovation or reoccupation, as the critical risk would come during demolition.
Ruling
The tribunal outlined the test set out in paragraph 18(1)(a) Schedule 4ZA; whether the property was ‘suitable’ to be used as a dwelling at the time of purchase and not whether it could become so used in the future.
They went to note that the definition provided by s 116 FA 2003 ( meaning of residential property) was not relevant as it does not deal with what constitutes and whether the building is suitable to be used as a dwelling fall under paragraph 3(3) Schedule 4ZA wherein paragraph 18 Schedule 4ZA provides the meaning of the “dwelling”.
The tribunal referenced the Uratemp case, wherein the Lord Chancellor said:
“Dwelling” is not a term of art, but a familiar word in the English language, which in my judgement in this context connotes a place where one lives, regarding and treating it as home.’ In our judgement a dwelling will, as a minimum, contain facilities for personal hygiene, the consumption of food and drink, the storage of personal belongings, and a place for an individual to rest and to sleep.” [our emphasis]
Tribunal remarked that the term “used as” test is a single binary test answering either the building on date of completion was used as a dwelling or it was not. However, the term dwelling being broad must be reasonable in determination. The tribunal noted,
“No doubt a passing tramp or group of squatters could have lived in the bungalow as it was on the date of purchase. But considering the state of the building as shown in the photographs on Mrs Bewley’s phone with radiators and pipework removed and with the presence of asbestos preventing any repairs or alterations that would not pose a risk to those carrying them out, we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.”
The tribunal further stressed that accidental damage, damage caused by events outside owners’ control but not accidental, partial demolition, repairs or any physical change to the building or its environment could also make the building unsuitable for use as a dwelling and this was the view of the Parliament.
The tribunal outlined that, the intention of the buyer for future use of the property was irrelevant in determination whether the property was a dwelling or not. The tribunal further outlined that the planning permission was also equally irrelevant as the permission was to demolish and construct a new building, as any action taken after purchase becomes irrelevant.
The tribunal agreed that asbestos did not prevent any re-occupation but stressed that it is not the test for determining if the property qualified as a dwelling. Renovation works was also considered irrelevant as the property was not renovated at time of purchase, and accepted the appellant’s claim that renovation was not feasible because the asbestos would be disturbed.
Having decided that the property was not a “dwelling” the Tribunal went on to consider whether SDLT should be charged at the standard residential rates or at non-residential rates.
Conclusion
This case is particularly important on determining what constitutes a dwelling and what constitutes an uninhabitable dwelling.
This ruling following the legislation points to the state of the property at the time of completion for determining its residential nature.
The tribunal outlined that, the intention of the buyer for future use of the property was irrelevant in determination whether the property was a dwelling or not.
