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Stamp Duty on Uninhabitable Property – A Complete Guide on Derelict

Published by UK Property Accountants
Published Date: April 7, 2023

Have you purchased an abandoned property which is inhabitable? Did you know you can save your Stamp Duty Land Tax (SDLT) if your abandoned property qualifies as derelict property for Stamp Duty Land Tax (SDLT) purposes.

In this article we intend to discuss about what is derelict property for SDLT. And how it can help you save your SDLT.

A derelict property is an abandoned, unusable, or vacant building or piece of real estate that has been uninhabited for a considerable amount of time and is in desperate need of repair.

A residential property that has fallen into disrepair and is no longer fit for habitation would not be considered a dwelling.

For a variety of reasons, including the owner's passing away and leaving the property in desolation, properties may be abandoned or left vacant.

The following are typical indicators of a vacant property:

  • The building has holes in the roof or walls, busted windows, and other structural damage;
  • The windows and doors are boarded up or covered with metal screens.
  • No one enters or is present in the building.
  • Pests and rats are a problem on the property;
  • The grounds are overgrown and neglected.
  • Stairs are in ruins

Properties that are abandoned or uninhabitable because of their bad state put the residents' health and safety at risk of bodily harm or injury and prevent full use of the property. The cost of renovating the property is high since it often needs extensive repairs, such as those for internal plumbing, roof leaks, structural failure issues, or plant growth or fungus, rodent infestation inside the building.

Are all Abandoned Property Derelict?

uninhabitable property

There is a major difference between a property that is basically empty and abandoned yet liveable and in need of modernization, remodelling, or repair, issues that can be resolved without significantly altering the property's structural integrity.

Empty houses are those that are unoccupied and largely unfurnished. Depending on the number of vacant homes, the local government may offer a discount or charge a premium. If a property has been empty for more than two years, a premium on council tax may be levied.

As per Local Authority Council Tax base England, the total number of empty dwellings as at 13 September 2021 was 468,000 – a decrease of 11,000 or 2.4% on the previous year. Of these, only 52,000 empty dwellings were subject to a discount, with 26,000 dwellings receiving a 100% discount. 72,000 empty dwellings were liable to pay a premium. 70% of dwellings being charged a premium have been empty for 2-5 years, 19% of dwellings have been empty for between 5 -10 years and 10% of dwellings have been empty for more than 10 years.

It is a question of fact if a property is derelict to the point that it no longer comprises a dwelling, and it only applies to a small percentage of properties. Likewise, substantial repair required to windows or a roof would also make the building unsuitable for use as a dwelling.

Stamp Duty on Uninhabitable Property

When purchasing abandoned or uninhabitable property, the buyer may be exempt from paying Stamp Duty Land Tax (SDLT) or qualify for a tax refund. Based on residential and non-residential properties, HMRC assesses SDLT. Since an abandoned or uninhabitable building is not deemed "suitable for use as a dwelling," non-residential rates apply when buying abandoned or uninhabitable properties.

The Current non-residential rates for SDLT are as follows:

Property or lease premium or transfer value

SDLT rates

Up to £150,000

Zero

The next £100,000 

2%

The remaining amount 

5%

Our skilled advisors will collaborate with you to comprehend your objectives, evaluate your tax obligations, and create a customized strategy that satisfies your requirements. You can Reclaim Stamp Duty Land Tax on Derelict Properties for Renovation or use today!

Suitable for Use as Dwelling

HMRC considers a dwelling to mean “a building or a part of a building that affords those who use it the facilities required for day-to-day private domestic existence and a sufficient degree of permanence” and the definition also covers buildings or properties under construction as a dwelling.

 Additionally, Section 116 Finance Act 2003, defines residential property as:

  • An existing building that is used or suitable for use as a dwelling or is in the process of being constructed or adapted for use as such
  • Land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on such land)
  • Land that subsists (or will subsist) for the benefit of a dwelling.
  • An interest in a building (or part of a building) that is to be constructed or adapted for use as a single dwelling, where construction or adaption has not yet begun but the contract has been substantially performed.

What makes a Property Uninhabitable or Derelict Property?

The building may be uninhabitable due to certain circumstances that forbid human habitation. Each building may have a variety of flaws or defect, but even one flaw may not render a building uninhabitable; this depends on several different factors in each case.

These factors can be summed as presence or absence of:

  • Presence of asbestos, Japanese weed knot throughout the building
  • Leakage and flooding of the floors and parts of building including damps in wall and structures.
  • Any rotting or mould growth in the building
  • Structural damage and issues in the property
  • Plumbing and issues in water supply and defects and unsafe electrical wires and networking
  • Leaking roof or major damage to the roof causing excessive damp and rot
  • Growth of plants on the structural areas of the building impacting safety and foundation.

Council Tax on Derelict Property

looking for an image representing the identification of Council Tax Band Lists

In England and Wales, the Council Tax Band Lists are maintained by the Valuation Office Agency. Decisions regarding banding are made by listing officers. For council tax purposes, properties, or structures suitable for habitation are banded. The main factor in choosing a home is whether the structure can be repaired or is habitable.

Even if extensive repairs or renovations are in progress, the Listing Officer will not delete a band from an occupied building or property because it is presumed to be habitable. Properties that are "truly derelict" are "wind and water" tight, have severe rot, or have suffered severe vandalism.

Repair Renovation and Stages of Identification for Uninhabitable Properties

Properties and buildings require regular maintenance and repair. The following repair and maintenance work is not considered significant for the property to be uninhabitable and removal from council tax obligation.

  • Roof covering
  • Windows
  • Kitchen or bathroom fittings
  • Rewiring
  • Paintwork and decoration

The Listing Officer may not remove the property or building for council tax purposes because these repairs are reasonable enough to allow the residents to live in the property while the maintenance or repair work is being done.

However, where repair and maintenance which are more substantial and require structural alteration, major renovation, or other alteration during which the inhabitants cannot live inside, the council tax band can be deleted.

Court Interpretation  Stamp Duty on Derelict Property

looking at a vector image of female attorney giving her speech in front of a judge

The First Trial Tribunal (FTT) in the case of P N Bewley Limited v HMRC held that higher rate of SDLT is not payable on the purchase of a property that is derelict and not inhabitable or not suitable for use as dwelling. It was necessary to look at the state of the property at the time of purchase and ask whether the property could be used as a dwelling.

The FTT stated that the relevant legal test is whether the building is 'suitable' for use as a dwelling at the time SDLT was payable and  the test was not whether it was 'capable' of such use. It also considered  the legislation could have used other description, whether the building was capable of being used as a dwelling.

FTT further clarified that, 'there is a clear distinction between derelict property and a dwelling that is essentially habitable, but in need of modernisation, renovation, or repair, which can be addressed without materially changing the structural nature of the property.

In this case, if the building was used as a dwelling at some point previously and permission to use as a dwelling continues to exist at the effective date of transaction, it will be considered suitable for use as a dwelling. Whether a property is derelict to the extent that it no longer comprises a dwelling is a question of fact..’

Explore another case law on SDLT & Property Suitability Case, discover the Intricacies of "Henderson Acquisitions Ltd v HMRC: A Critical SDLT and Property Suitability Case". Dive Deeper into the Legal Landscape and Implications. Read Now.

Conclusion

Since assessment of Derelict property depends on various factors it is important to gather as many information about the property, its prior use, and current situation of damage to arrive at a definative conclusion.

The derelict property assessment form helps us assess whether purchased property qualifies for SDLT relief under Derelict Property and is applicable for a refund  or arrive at correct estimation of SDLT payable. 

Do you have more queries?

We, at UK Property Accountants have helped a lot of clients in an efficient way. If you have any queries on tax exemptions or need some advice from us for tax reliefs on Derelict Property. Fill our Assessment Form Below and Get Peace of Mind.

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