Bought an abandoned property that’s uninhabitable? You might be able to save on Stamp Duty Land Tax (SDLT) if the property counts as derelict for SDLT purposes. The rules aren’t always clear-cut, though, so it’s worth checking the specific eligibility criteria with a tax professional before you assume anything.
In SDLT terms, a derelict property is one that’s been abandoned or left in poor condition. Because these properties can fall outside the standard residential rules, buying one may mean lower rates or even an exemption. The detail below explains how it works.
Put simply, a derelict property is a building that has sat empty, abandoned or unused for a long stretch of time. Years of neglect usually leave it in a poor state, needing serious work before anyone could live there again.
If a home has fallen into disrepair to the point where no one could reasonably live in it, it stops being classed as a dwelling. A property can end up that way for all sorts of reasons. Often it is something like the owner passing away, after which the building is left untended and slowly falls apart.
A property in this condition isn’t just unappealing. It can be seriously unsafe, posing real health and safety risks to anyone inside. And until the damage is dealt with, the building can’t really be used for anything.
Bringing one back into use is rarely cheap. You might be looking at replacing internal plumbing, fixing roof leaks, repairing structural faults and clearing out everything from plant growth and fungus to rodent infestations. The bill for all of that can add up fast.
Are All Abandoned Properties Uninhabitable or Derelict?
Not every empty or abandoned house is uninhabitable. Some are still perfectly liveable and simply need updating: repairs and cosmetic work to improve how they function and look, without touching the underlying structure. That kind of work can be done without altering the building’s structural integrity.
An empty house is a dwelling that nobody currently lives in and is usually unfurnished. Depending on how many empty homes are involved, your local council can either apply a discount or charge extra. Leave a property unoccupied for more than two years and you may find an additional council tax charge on top.
Figures from the Local Authority Council Tax base in England put the number of empty dwellings at 468,000 as of 13 September 2021, down roughly 2.4% (11,000 homes) on the year before.
Of those, just 52,000 qualified for a discount, and 26,000 of them got a full 100% discount. At the other end, 72,000 empty dwellings were hit with a premium. Most of those, 70%, had been vacant for 2 to 5 years, with 19% empty for 5 to 10 years and 10% sitting unused for more than a decade.
Whether a property is derelict enough to no longer count as a dwelling comes down to the facts of each case, and only a fairly small number of properties really meet that bar. Major structural repairs to things like the roof or windows, where they leave the building unfit to live in, are another situation that can tip it over the line.
SDLT on Uninhabitable Property
Buy an abandoned or uninhabitable property and you may be entitled to an SDLT exemption, or able to claim a refund. HMRC works out SDLT according to whether a property is residential or non-residential.
Because a building that can’t be lived in isn’t treated as suitable for use as a dwelling, the buyer falls under the non-residential rates instead.
Our advisers can help you get clear on what you’re trying to achieve, work out where you stand tax-wise, and build a plan around your situation. If you’d like to talk through reclaiming Stamp Duty Land Tax on a derelict property you’re planning to renovate, do get in touch.
Suitable for Use as Dwelling
HMRC defines a dwelling as a building, or part of one, that offers the facilities needed for everyday private domestic life, along with a reasonable degree of permanence and the ability to move in straight away. That definition also covers buildings still under construction.
What Makes a Property Uninhabitable or Derelict?
Sometimes a building is judged uninhabitable because of specific issues that make it impossible to live in. Every property has its own mix of faults, and in most cases it takes a combination of them, rather than a single defect, to render a building truly unfit for people to live in.
Some examples of what can make a property uninhabitable under HMRC’s rules:
- 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
Identifying an Uninhabitable Property
Everyday maintenance and minor repairs aren’t enough to make a property uninhabitable or exempt it from council tax, so the bill still has to be paid.
- Roof covering
- Windows
- Kitchen or bathroom fittings
- Rewiring
- Paintwork and decoration
The Listing Officer can’t take a property out of council tax assessment just because it is having reasonable repairs or maintenance that still let people live there. But where the work involves major structural changes, alterations or renovations that leave the property uninhabitable, the council tax band can be removed.
Can I Get a Stamp Duty Refund for an Uninhabitable Property?
If a miscalculation means you’ve overpaid stamp duty to HMRC, you may be eligible for a stamp duty refund, which lets you reclaim the extra you paid and have it returned to your bank account.
Buy an uninhabitable property and there’s a good chance you qualify for a refund too. Applying for a rebate is fairly straightforward: you can do it yourself, through a solicitor, or with an online rebate company. Whichever route you take, the odds of getting money back are strong.
Can you get a mortgage on an ‘uninhabitable’ property?
Getting a mortgage on an uninhabitable property can be tricky. The added risk makes lenders wary of financing them. That said, if there’s a sound reason behind the property’s state, such as it being a fixer-upper you plan to renovate, a mortgage may still be within reach. Just be ready for a bit more legwork and a narrower set of options.
It also helps to approach lenders knowing that they don’t all define ‘uninhabitable’ the same way. Each one sets its own criteria and limits on the kinds of properties it is prepared to lend against, so views can vary quite a bit from one lender to the next.
The Bewley case
Back in 2019, the First Tier Tribunal ruled in Bewley v HMRC that a bungalow and its plot, which had planning permission to be demolished and replaced with a new home, weren’t suitable for residential use at the effective date of the transaction.
That meant SDLT was due at the non-residential rates rather than the residential ones, and the 3% SDLT supplement didn’t apply in this case.
Conclusions – Stamp Duty On A Derelict Property
Stamp Duty is payable when you buy a property worth more than £500,000, as long as it isn’t a second home. That threshold is what decides whether the tax applies.
For properties valued above £1.5 million the rates step up gradually, topping out at 12%.
If the derelict property you’re eyeing comes in under £500,000, there’s no Stamp Duty to pay, unless you already own another property. Where it is a second purchase and the value tops £40,000, you could face Stamp Duty plus a surcharge.
It is worth remembering that although case law on Stamp Duty for derelict properties has been challenged on the uninhabitable test, every case still has to be judged on its own facts. Don’t simply assume Stamp Duty won’t apply when you buy a derelict property.
When it comes to keeping up with shifting SDLT and stamp duty rules, we’ve got you covered. Our experts stay on top of the latest regulations, so you can claim every relief you’re entitled to without any nasty surprises. Whether you’re buying commercial or residential property in England, we’ll tailor our advice to the stamp duty and SDLT treatment that fits your particular transaction.
With that knowledge and experience behind you, you can rely on us to steer you through a complicated area and help you make confident decisions. Give us a call on 03300 575 902 or Get in touch with us.
FAQs – Uninhabitable / Derelict Property SDLT
Can I save Stamp Duty Land Tax (SDLT) if I buy an uninhabitable property?
Yes. If an uninhabitable property qualifies as derelict for SDLT purposes, you may well be able to save on SDLT.
What qualifies as a derelict property for SDLT purposes?
A property is treated as derelict when it is in such poor repair that no one could live in it without major renovation or rebuilding.
How can I determine if my property qualifies as derelict for SDLT purposes?
The safest way to find out is to ask a tax professional, who can talk you through the specific criteria for derelict status and whether your property meets them.
What are the eligibility criteria for claiming SDLT relief on derelict property?
The criteria for claiming SDLT relief on derelict property can vary from case to case, so it is best to get professional advice on exactly what is required in your situation.
Is there a specific process for claiming SDLT relief on derelict property?
Usually it means providing evidence of the property’s condition and showing that it meets the relevant criteria. A tax professional can guide you through each step.
Where can I find more information about SDLT relief on derelict property?
For more detail and guidance on SDLT relief for derelict property, it is worth speaking to SDLT Experts or Property Accountants, or checking the official government resources on SDLT.
