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TAX TIP TUESDAY: When is a Dwelling not a Dwelling for SDLT?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

Stamp duty land tax (SDLT) is generally straight forward — it is owed on any residential property (house or flat) valued over £125,000. There are some caveats if you are purchasing your first home, if the purchase price is under £500,000, or if you are buying a second property. However, under normal situations, tax is based on a sliding scale:

The importance of a “dwelling”

According to the government, a dwelling is classified as such if “it is used or suitable for use as a single dwelling or it is in the process of being constructed or adapted for such use.” There are two circumstances in which the definition of a dwelling will have a significant impact on SDLT. The first is the 3% higher tax rate and the second has to do with multiple dwellings relief.

The condition of the dwelling and its habitable status can be called into question in regards to tax owed on it, as was the case in recent tribunal proceedings surrounding a bungalow which had been previously used as a home, but at the time of sale, was described as a “derelict bungalow to be demolished.”

Certain conditions made it unliveable, such as asbestos, lacking disconnected water, no heating system, and missing floorboards. While in its current state it wasn’t being used as a dwelling and certainly was not suitable for use as one, HMRC attempted to argue that despite these conditions, it was once inhabited and with renovations could return to a liveable dwelling.

The verdict

Fortunately, the judge in the case reviewed the legislation carefully and concluded that while the bungalow certainly could be “capable” of use and cited the example of squatters or the homeless using the structure as shelter, as it stood, it was certainly not suitable for use. The possibility of renovation also has no bearing on whether or not it should be classed as a dwelling because the law does not state that the building is suitable after renovation, only that if it is in the process of already being constructed or adapted for use. In both areas of the law, this bungalow should not be counted as a dwelling.

The wording of the law was extremely important in this case and by breaking down each part and considering the building, it was clear that in legal terms, it did not classify as a dwelling.

Speak to the experts

If you are considering purchasing or selling a property where an aspect of SDLT might come into question, get in touch with us for guidance on the best course of action today.

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