PN Bewley Ltd v HMRC and Its Impact on Property Investors

(‘Residential’ vs ‘Non-Residential’ Classification)

Introduction

(‘Residential’ vs ‘Non-Residential’ Classification>PN Bewley Ltd v HMRC)

The PN Bewley Ltd v HMRC case in 2019 has become a landmark decision impacting how stamp duty is assessed on certain types of property transactions. This case revolved around whether a derelict bungalow was considered residential or non-residential for Stamp Duty Land Tax (SDLT) purposes.

Background of the Case

In the case of PN Bewley Ltd v HMRC, the central issue revolved around the classification of a property for Stamp Duty Land Tax (SDLT) purposes based on its condition at the time of purchase.

Property in Question

Source: David James & Partners

Location and Description: The property, a bungalow named Rosemount, was located in Weston-Super-Mare.

Construction and State: Built around 1950, it was a prefabricated timber frame with asbestos cement infill panels.

Condition at Time of Purchase: By the time PN Bewley Ltd purchased it in 2017, the bungalow was in a state of considerable disrepair. Key features of its condition included:

• The central heating system was removed.
• Several floorboards were missing.
• The presence of asbestos, making refurbishment unviable.
• Described as ‘derelict’ in a lender’s survey.
• Had been unoccupied since 2014, worsening its condition.

Purchase Intentions

PN Bewley Ltd intended to demolish the bungalow and redevelop the site, which was evident from the granted planning consent for demolition and the construction of a new dwelling.

Source: David James & Partners

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The Arguments in the Case

(‘Residential’ vs ‘Non-Residential’ Classification>PN Bewley Ltd v HMRC)

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PN Bewley Ltd’s Stance

Non-Habitability: The company argued that due to its derelict condition, the property was not “suitable for use as a single dwelling” at the time of purchase.

Lack of Essential Amenities: Emphasised that the removal of important components like heating and plumbing rendered the property unsuitable for living.

Asbestos Issue: Highlighted that the presence of asbestos was a significant barrier to any refurbishment efforts.

HMRC’s Challenge

Residential Classification: HMRC contended that the property was still a residential dwelling, thus subject to higher SDLT rates including the 3% surcharge for additional properties.

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Tribunal’s Decision

(‘Residential’ vs ‘Non-Residential’ Classification>PN Bewley Ltd v HMRC)

Focus on Habitability

The Tribunal’s decision hinged on whether the bungalow was suitable for use as a dwelling at the completion date. They considered factors like the missing amenities and the structural issues due to asbestos.

Tribunal’s Conclusion

Not Suitable for Dwelling: Concluded that the bungalow, in its state at the time of purchase, was not suitable for use as a dwelling.

Classification as Non-Residential: As a result, the property was classified as non-residential, leading to a lower SDLT rate.

Relevance of Future Intentions

The Tribunal deemed the buyer’s future intentions for the property (demolition and redevelopment) irrelevant in determining its status as a dwelling at the time of purchase.

Implications of the Case

Precedent for Property Investors: This case set a precedent that properties in a non-habitable state at the time of purchase could be classified as non-residential for SDLT purposes.

Trigger for SDLT Reclaims: Prompted property investors to review past transactions, especially where properties were bought in a similar state, for potential SDLT reclaims.

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Broader Impact on Property Investors

(‘Residential’ vs ‘Non-Residential’ Classification>PN Bewley Ltd v HMRC)

Trigger for Stamp Duty Reclaims

This case set a precedent, leading many property investors to reassess and reclaim overpaid SDLT. Investors began arguing that properties bought in a non-habitable state should be classified as non-residential, thus lowering their SDLT liability.

Criteria for Assessment

The key factor is the habitability of the property at the time of purchase.

Properties lacking essential living facilities, or in a derelict state, may be argued as non-residential for SDLT.

Considerations for Future Transactions

Property investors now scrutinise the condition of properties more closely before completing a purchase. This case emphasises the importance of a detailed assessment of a property’s condition to determine the correct SDLT rate.

Conclusion

The PN Bewley Ltd v HMRC case has significantly influenced how stamp duty is assessed on properties that are not habitable at the time of purchase. For property investors in England and Northern Ireland, this ruling creates opportunities to reduce SDLT costs on properties that are purchased in poor condition and require significant renovations to become habitable. This decision highlights the importance of properly evaluating the state of a property and its suitability as a dwelling to determine the correct SDLT liability.