Have you bought an abandoned property which is inhabitable? If yes it is possible to save Stamp Duty Land Tax (SDLT) if an abandoned property qualifies as derelict property for SDLT purposes. However, it is advisable to consult with tax professionals for specific details and eligibility criteria regarding this matter.
Derelict property for SDLT refers to properties in poor condition or abandoned. It can help save on SDLT as it may be eligible for lower rates or exemptions. In this article we will explain everything about Derelict property.
A derelict property refers to a building or real estate that has been left vacant, abandoned, or unused for an extended period of time. These properties are typically in a state of disrepair and require significant restoration due to neglect.
A residential property that is in a state of disrepair and is no longer suitable for living would not be deemed a dwelling. Properties may become abandoned or vacant due to various factors, such as the owner’s demise, which can result in neglect and abandonment non residential properties, leaving the property in a state of desolation.
Abandoned or uninhabitable properties pose serious risks to the health and safety of residents, potentially resulting in bodily harm or injury. Moreover, these properties cannot be fully utilized due to their deteriorated state.
Renovating such properties is often costly, requiring extensive repairs like fixing internal plumbing, addressing roof leaks, resolving structural failures, and eliminating plant growth, fungus, and rodent infestations within the building. The financial burden associated with renovations can be substantial.
Are all Abandoned Property Uninhabitable / Derelict?
A property that is essentially empty and abandoned but still liveable may require various updates substantial repairs, renovations, or repairs to enhance its functionality and appearance without compromising its structural stability. These issues can be addressed without making substantial changes to the property’s structural integrity.
Empty houses are dwellings that are not being lived in and are mostly lacking furniture. The local government has the authority to provide a discount or impose an additional fee, depending on the quantity of vacant homes. If a property remains unoccupied for over two years, the council tax could be subject to an extra charge.
According to the latest data from the Local Authority Council Tax base in England, the number of empty dwellings as of 13 September 2021 was 468,000. This represents a decrease of approximately 2.4% or 11,000 dwellings compared to the previous year.
Out of these vacant properties, only 52,000 were eligible for a discount, with 26,000 receiving a 100% discount. On the other hand, 72,000 empty dwellings were subject to a premium. It is worth noting that 70% of the properties charged a premium had been vacant for 2-5 years, 19% for 5-10 years, and 10% for more than 10 years.
Determining whether a property is derelict to the extent that it can no longer be considered a dwelling is a matter of factual assessment. However, this characterization applies only to a relatively small portion of properties. Additionally, if significant repairs constitute structural and are needed for windows or the roof, rendering the building unsuitable for habitation is another circumstance to consider.
Stamp Duty Land Tax – SDLT on Uninhabitable Property
When purchasing abandoned or uninhabitable property, buyers may be eligible for an exemption from Stamp Duty Land Tax (SDLT) or qualify for a tax refund. The HMRC assesses SDLT based on whether the property is residential or non-residential.
Since an abandoned or uninhabitable building is considered a property unsuitable for use as a dwelling, the buyer would be subject to non-residential rates when purchasing such properties.
Our team of skilled advisors is here to assist you in understanding your objectives, assessing your tax obligations, and developing a personalized strategy tailored to your needs. Feel free to contact us to discuss the possibility of reclaiming Stamp Duty Land Tax on derelict properties for renovation.
Suitable for Use as Dwelling
According to HMRC, a dwelling is defined as a building or part of a building that provides the necessary facilities for everyday private domestic existence and a reasonable level of permanence and immediate occupation. This definition also extends to buildings or properties that are currently undergoing construction.
What makes a Property Uninhabitable or Derelict Property?
There are instances where a building may be deemed uninhabitable due to specific circumstances that prevent human occupancy. While every building can have different flaws or defects, it usually takes multiple factors in each case to determine if even one flaw makes a building unfit for human habitation.
Below, we have set out some examples of what might make a property uninhabitable under HMRC’s rules and regulations:
- No running water
- Presence of asbestos in the building
- Non-standard roofs
- Damp or mould that could cause health risks
- Is not weatherproof
- Does not meet building regulations
- Presence of lead
Identification for Uninhabitable Properties
Regular maintenance and repair work, which is not considered significant enough to render a property uninhabitable or exempt from council tax, does not release the obligation for payment.
- Roof covering
- Kitchen or bathroom fittings
- Paintwork and decoration
The Listing Officer is not authorised to remove a property or building from council tax assessment solely due to reasonable repair and maintenance work that allows residents to continue living on the premises. However, if the repairs involve significant structural changes, alterations, major renovations, or other modifications that render the property uninhabitable, the council tax band can be deleted.
Can I Get a Stamp Duty Refund for an Uninhabitable Property?
If there are miscalculations resulting in an overpayment of stamp duty to HMRC, individuals may be eligible for a stamp duty refund. This allows them to reclaim any excess amount paid from HMRC and have it deposited into their designated bank account.
If you have purchased an uninhabitable property, it is possible that you may be eligible for a stamp duty refund. The process to apply for a rebate is relatively simple and can be done through various methods such as personally, with the assistance of a solicitor, or by utilizing an online mortgage rebate company. Regardless of the chosen method, there is a high likelihood of receiving a refund.
Can you get a mortgage on an ‘uninhabitable’ property?
Obtaining a mortgage for an uninhabitable property can be challenging. Lenders are often hesitant to finance such properties due to the increased risk. If you have valid reasons for the property’s condition, such as it being a fixer-upper that you intend to renovate, you may still be able to secure a mortgage. However, be prepared for additional effort and possibly limited options.
When seeking a home loan, it is important to work with lenders who have varying criteria regarding the definition of uninhabitable properties. Keep in mind that each lender may have different opinions and restrictions on the types of properties they are willing to provide mortgages for.
The Bewley case
In 2019, the First Tier Tribunal’s ruling in the case of Bewley v HMRC stated that a bungalow and plot of land, which had planning permission for demolition and construction of a new dwelling, were not considered suitable for residential use at the effective date of the transaction.
This meant that Stamp Duty Land Tax (SDLT) was payable at the non-residential rates rather than the residential rates. As a result, the 3% SDLT supplement did not apply in this particular case.
Conclusions – Stamp Duty On A Derelict Property
Stamp Duty is a tax that must be paid when purchasing a property above £500,000, provided it is not a second home. This threshold price determines whether Stamp Duty is applicable or not.
The rates for properties valued over £1.5 million increase gradually, with the highest rate payable being 12%.
If the derelict property you’re interested in purchasing is priced below £500,000, you won’t have to pay Stamp Duty, unless you already own another property. However, if it’s your second property purchase and the value exceeds £40,000, you may be subject to Stamp Duty as well as a surcharge.
It is important to note that while case law regarding the payment of Stamp Duty for a derelict property has been contested based on the uninhabitable criteria, it is essential to evaluate each case individually. Therefore, it is unwise to assume that Stamp Duty will not be applicable when purchasing a derelict property.
We’ve got you covered when it comes to navigating the ever-changing world of SDLT and stamp duty rules. Our experts are well-versed in the latest regulations and can ensure that you claim all available reliefs while avoiding any unexpected surprises. Whether you’re investing in commercial or residential properties in England, we provide tailored advice on the stamp duty and SDLT treatments specific to your transaction.
With our up-to-date knowledge and experience, you can trust us to guide you through the complex landscape and help you make informed decisions. Please call us on 03300 575 902 or Get in touch with us.