The case of PN Bewley Ltd v HMRC (2019) is a pivotal example that sheds light on the significance of the effective date of a transaction when considering a stamp duty reclaim. This case revolved around the purchase of a bungalow and a plot of land by PN Bewley Ltd, which intended to demolish the existing structure and build a new dwelling. The primary issue at hand was whether the higher 3% rates of Stamp Duty Land Tax (SDLT) were applicable, which hinge on the residential status of the property at the effective date of the transaction
Here’s how the case unfolded and underscored the importance of the property’s condition at the effective date of transaction:
Dilapidated State of Property: At the time of the transaction, the bungalow had been vacant since 2014 and was in a dilapidated state, with no heating system and the presence of asbestos. A demolition survey and a mortgage survey both underscored the poor condition of the property, rendering it unfit for habitation or mortgaging
HMRC’s Stance: HMRC argued that despite its condition, the property should be considered residential as it was situated in a residential area and had the potential for refurbishment or reconstruction into a residential dwelling.
Tribunal’s Ruling: The First-tier Tax Tribunal (FTT) clarified that the key factor was the property’s condition at the effective date of the transaction. It emphasized that considerations regarding refurbishment or demolition works post-transaction were irrelevant. The FTT introduced a “use test” to determine whether a property is used or is suitable for use as a dwelling at the effective date. Despite the original residential intent for the bungalow, its unsuitable state at the effective date meant that the higher SDLT rates were not applicable.
Implication for Stamp Duty Reclaims: This case affirmed that when reclaiming stamp duty, the focus should be on the property’s condition at the effective date of the transaction.