HMRC SDLT: SDLTM00385 – Scope: what is chargeable: land transactions: Residential Property– – Not suitable for use as a dwelling (uninhabitable dwellings)

Principles and Concepts of Chargeable Land Transactions

This section of the HMRC internal manual discusses the criteria for classifying land transactions involving residential properties as chargeable. It specifically focuses on properties deemed uninhabitable and unsuitable for use as dwellings.

• Defines what constitutes a residential property for tax purposes.
• Explains the conditions under which a property is considered uninhabitable.
• Outlines the implications for Stamp Duty Land Tax (SDLT) on such properties.
• Provides guidance on assessing property suitability for habitation.

SDLT Repayment Claims for Uninhabitable Dwellings

When dealing with Stamp Duty Land Tax (SDLT) repayment claims regarding properties that are not suitable for use as a dwelling, there are important points to keep in mind. HMRC has found that many claims submitted in this area contain errors. Below, we clarify the key elements regarding what constitutes a chargeable land transaction for residential properties that are deemed uninhabitable.

Understanding Suitability for Use as a Dwelling

Whether a property is suitable for use as a dwelling is determined by the condition of the property. It applies to a limited number of buildings. A property may be classified as unsuitable for occupancy if it has been damaged or has deteriorated to a point where standard repair, replacement, or modernisation work cannot address the issues effectively. Key facts include:

• A property that cannot safely or effectively be used for living purposes is considered unsuitable as a dwelling.
• This classification typically affects a small minority of properties.

Derelict vs. Renovation-Ready Properties

It’s important to distinguish between derelict properties and those that simply need renovations. A derelict property is one that is beyond repair due to severe structural damage, making it unsafe for anyone to occupy. In contrast, a property requiring modernisation, renovation, or repairs can still have the potential to become a suitable dwelling again, provided it has no major structural issues.

Key points regarding this distinction include:

• If a property was previously used as a dwelling, it remains fundamentally suitable for habitation unless structural or physical integrity prevents it from being used safely.
• If the necessary permissions to use the property as a dwelling are still in place on the effective date of the property transaction, it should be considered suitable for residential use, even if it requires work before someone can live in it.

Examples of Common Repairs

Many repairs and improvements do not render a property unsuitable for use as a dwelling. Below are examples of typical issues that can arise without changing the suitability of the property:

• Temporary removal of essential facilities: For example, if bathroom or kitchen facilities are removed for a short period prior to sale, this does not mean the property is uninhabitable.
• Repairs to common fixtures: Substantial repairs to windows, floors, or roofs are necessary but do not classify the property as unsuitable.
• Boiler replacement: A replacement boiler and associated pipework are standard updates that maintain rather than decrease a property’s living suitability.
• Electrical issues: Unsafe electrical wiring requires immediate attention but does not by itself undermine the property’s potential for habitation.
• Utility reconnections: The need to restore services like gas and electricity can be resolved, thereby restoring the property’s status as a suitable dwelling.
• Pest control: An infestation of pests is a manageable issue that can be addressed and resolved.
• Damp and cosmetic damage: Issues like damp proofing needs or plasterboard damage can be repaired without affecting the overall usability of the property.
• Flood recoveries: Properties that have suffered from flooding can often be restored to a suitable condition.

These issues generally represent standard maintenance or improvement activities associated with residential properties. They are not significant structural changes that would disqualify a property from being classified as a dwelling.

Legal Precedents

Several decisions by First-tier tribunals have provided insights related to the classification of properties in terms of their suitability as dwellings. These can serve as useful references:

• Henderson Acquisitions Ltd [2023] UKFTT 739 (TC): This case clarified the boundaries for what constitutes an uninhabitable dwelling.
• Mudan [2023] UKFTT 317 (TC): This judgement examined the implications of renovation work on property classifications.
• Fish Homes Ltd [2020] UKFTT 180 (TC): This case discussed the extent of repairs necessary to maintain a property’s classification as a dwelling.
• PN Bewley Ltd [2019] UKFTT 65 (TC): This decision provided insights on various situations where properties remain viable for residential use.

These tribunal decisions affirm that many properties, even if they show signs of wear and require extensive work, can still be classified as suitable for use as dwellings.

Risks of Incorrect Claims

It is essential for potential claimants to approach the process with caution. Many SDLT repayment claims related to uninhabitable properties are incorrectly submitted, leading to potential disputes with HMRC.

• Seeking advice from qualified professionals can help prevent errors in submission.
• Being misled by repayment agents can result in making claims that fail to meet the required standards, jeopardising the repayment process.

Therefore, it is advisable to fully understand whether a property genuinely qualifies for a repayment before making any claims or engaging in transactions.

In Summary

The classification of a property as uninhabitable affects the ability to claim SDLT repayments. Understanding the difference between properties unsuitable for habitation and those that just need timely renovations or repairs is critical. By keeping these factors in mind, prospective buyers and sellers can better navigate the complexities of SDLT and avoid common pitfalls associated with repayment claims.

For further information regarding SDLT property classifications, you can refer to the more comprehensive sections of HMRC guidance such as SDLTM00385 – Scope: what is chargeable: land transactions: Residential Property– – Not suitable for use as a dwelling (uninhabitable dwellings).

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM00385 – Scope: what is chargeable: land transactions: Residential Property– – Not suitable for use as a dwelling (uninhabitable dwellings)

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