When is a dwelling not a dwelling?

Stamp duty land tax SDLT memo and model of home.

Stamp duty

Stamp taxes, whether Stamp Duty Land Tax (SDLT) or its devolved equivalents, are usually higher for residential property than non-residential or mixed-use property. (However, the current nil rate thresholds for SDLT, particularly for first-time buyers, mean that this is not always the case.) ‘Second home supplement’ may also apply to residential property. To be residential, the property must be a dwelling. Two recent cases, in which run-down properties have been bought, have looked at how the term ‘dwelling’ should be interpreted.

In a 2019 case, a dilapidated bungalow was purchased, which cost £200,000. Second home supplement raised the SDLT from £1,500 to £7,500. The property was in a very poor state of repair (e.g. radiators and pipework removed and the presence of significant amounts of asbestos). It was uninhabitable, unmortgage able and was to be demolished and replaced with a new dwelling.

The tribunal held that the bungalow was not suitable for use as a dwelling. It was treated as a non-residential property and, as a result, the SDLT liability was reduced to £1,000. A very similar case this year has produced a different outcome. Having bought a severely dilapidated property in London for £1.755m, the couple moved into the property with their family in May 2020, by which time the building work was partially completed.

Unlike in the previous case, the property had been used relatively recently as a dwelling and was structurally sound, despite lots of work being required to make it habitable again. While empty, it had not been adapted for another purpose. With no structural issues, the property was capable of being used as a dwelling once more, once the repairs and renovation work had been carried out. None of this work was sufficiently fundamental to make it a non-residential property at the time of purchase. Thus, the SDLT payable was £177,000, rather than £99,750. The key distinction from the other case seems to be that this severely dilapidated property was being repaired to become usable as a dwelling again, as opposed to being demolished. The differences between residential and non-residential stamp tax charges can be huge, so please make sure you know how your property will be categorised before proceeding with a purchase.