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  • Tax

    Legitimate way to avoid 3% SDLT surcharge

    The Chartered Institute of Taxation picked up on this back in June 2018. HMRC are reviewing the definition of 'derelict' according to the attached notes.

    Irrespective of previous use, a building that is no longer used as a dwelling or suitable for use as a dwelling falls outside section 116(1)(a). It is recognised that there is an element of subjectivity in what constitutes dereliction such that a building is no longer habitable. HMRC will consider expanding their guidance to indicate the factors to be considered although a factor taken alone will not be determinative.

    https://www.tax.org.uk/policy-technical/...6-meaning-

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    I suppose this does make sense.  If you purchase a home which is derelict and render it usable, you are adding to housing supply, and it is reasonable to expect that this is encouraged.  However I hope this ruling will only apply to genuinely derelict properties which have not been inhabited for a reasonable time.

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    My council confirmed this morning that a house with asbestos present would be rendered unfit for human habitation!

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    Would this SDLT avoidance plan be legally acceptable?

    Buy a new build  worth 515K  for 500K but without a kitchen or bathroom installed as yet

    This would render it technically uninhabitable for SDLT avoidance purposes

    The extra  SDLT @ 3% would normally be  15K

    Then have a separate  agreement with  the developer for them  to put in the kitchen and bathroom after completion for that remaining 15K .

    The developer then gets what they want price wise and you avoid 15K SDLT

    Wheres the catch ?




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    Jonathan Clarke. http://www.buytoletmk.com

    This little snippet from the Stamp Duty Land Tax Manual covers that situation

    01 Residential property is defined as:

    • a building used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling
    • the garden or grounds of such a building, including structures on the garden or grounds
    • an interest or right in or over land that benefits a dwelling, for example a right of way to access the dwelling.

    Residential property is defined at FA03/S116, which also provides that anything that is not residential property is non-residential property.

    https://www.gov.uk/hmrc-internal-manuals...sdltm62040

    However, what isn't clear is when a property is in disrepair to the point that the kitchen and/or bathroom are no longer functional.

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    Thank you - yes the first bullet point seems to cover that potential plan

    Ok what about this....

    I saw a probate property in 2016 - outdated by 50 years . Was going to buy cash so no mortgage issues 

    Not really habitable needed everything updated and it stunk to the point 2 mins inside was enough 

    Kitchen / bathroom falling apart and would 100% want to be replaced .

    No one would be expected to buy it and then live there . But feasibly one could argue you could 

    But possibly borderline as far as HMRC were concerned if i challenged

    Been empty maybe 9 mths before completion .

    What if i had got the executors  via the agents to rip out the kitchen and bathroom after my viewing and before exchange and split the cost of the SDLT saved with them which would be reflected in the reduced offer price .

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    Jonathan Clarke. http://www.buytoletmk.com


    I have asked the same question but can't get a definitive answer, hence the previous links.

    If a property isn't mortgageable or letable or habitable is it still a dwelling? I have seen many commercial properties that are perfectly liveable with kitchens and toilets and maybe even a shower and these are not dwellings due to their usage class.

    If a property isn't a dwelling, it's not just the 3% that is saved, as non residential rates of SDLT/LTT/LBTT apply, which can offer a further saving. I've just purchased a mixed use property in Wales for £168k where LTT liability is £180. Had I spent the same on a residential property in England,  SDLT would be £5900!

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    Way too much is being made of this by landlords desperate for a ray of sunshine/a "win" (any win).  I have actually read the full judgment.

    Firstly, this was a first tier tribunal decision - so will not necessarily be binding on subsequent courts. 

    More importantly, the substance: It was quite clear that mortgageability was not a factor that the court took into consideration - and it should be obvious that mortgageability or otherwise can be utterly irrelevant (e.g. Japanese Knotweed would have zero impact on "suitability as a dwelling").  Similarly ripping out a kitchen or bathroom will not NOT be sufficient to render the property unsuitable for use as a dwelling (even though it does make it unmortgageable).

    The court's main reason for its decision was that the property was derelict and (because of the degree of dereliction) quite possibly full of free asbestos, and there was no heating system anymore - and no repair work had started. 

    The state of the property was such that it could NOT be refurbished but would have to be demolished - and I would suggest anyone who thinks this is a loophole should use this as the test before spending money on fighting HMRC on this point.

    Separately, given the cost of the required surveys (several thousand £ I would expect), it will likely only be worthwhile on purchases in the £150k plus price range.

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    My concern is that this case law may fuel (pun not intended) more occasions of "mystery fires" on sites with development potential.

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    Just an anonymous opinion on the Internet.