The Court of Appeal has confirmed that a property you can’t move into right away is still a residential property for tax purposes. What’s the full story?
In this case, the taxpayers purchased a £1.7m property in London that had been empty for five months after the previous tenants were evicted. During that time, the property had been broken into and vandalised, none of the utilities worked and mice and rat droppings covered the kitchen. The boiler had been ripped off the wall, the gas, electricity and water were not functioning safely and rainwater was leaking into the property. It took nine months of renovation work before the taxpayers moved into the property.
Higher rates of stamp duty land tax (SDLT) are chargeable on residential properties, with the pertinent part of the definition being that the property is residential if it is “suitable for use as a dwelling”. Due to the state of the property, the taxpayers argued that it was not suitable to be occupied and was uninhabitable. As such, they argued lower rates of SDLT should apply.
This is the third time the taxpayers have appealed and the third time it has been dismissed. The Court of Appeal agreed with HMRC and the tax tribunals that the property was still a residential property, and noted that the treatment shouldn’t be restricted to a snapshot on a particular date. In the context of the rest of the legislation, it would be illogical to interpret the term “suitable for use as a dwelling” as meaning that properties needing modernising or repairs were outside the definition of a residential property, when properties that are in the process of being constructed or adapted do meet the definition of a residential property.
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