Landmark Court Ruling Against HMRC Opens Gates for Buyers Who Can Avoid 3% Stamp Duty on a Second Home

Published: 29/03/2019

A recent court ruling in a Bristol tax tribunal which found in favour of Paul and Nikki Bewley, who bought a derelict bungalow in Weston Super Mare for £200k in January 2017 riddled with asbestos and no central heating, on the grounds that the property was so dilapidated it was unfit to live in.

The Bewleys decided to knock down the original building so they could build a new property in its place with the belief they would not be liable for the 3% surcharge for purchasing an uninhabitable second home. 

The landmark ruling could potentially pave the way to challenges to the 3% stamp duty surcharge levied on second homes. The ruling could also potentially create an opportunity for buyers who have already paid the surcharge to request a refund from HMRC and could well set a precedent for buy-to-let investors.

When the Bewleys bought the second property, they paid HMRC the normal rate of stamp duty of £1,500.  However, HMRC later demanded they pay the 3% surcharge taking the total SDLT to £7,500.

The Housing Act of 1967 states that a property must have cooking and bathing facilities and a lavatory in order to be deemed habitable, however HMRC contested this and said that the 3% stamp duty surcharge was applicable on the grounds that the property was capable of being used as a dwelling at some point in the future. The tax tribunal ruled against HMRC and sided with the Bewleys, deciding that they shouldn’t be liable for the 3% levy because the property "was not fit to live in immediately".

So what does this mean?

In short, this judgment suggests that buy-to-let investors may now have a very strong case for exemption from the 3%  SDLT surcharge if they either bought are purchasing a property that could reasonably be deemed uninhabitable at the time of purchase.  

HMRC said that it is considering the court's judgment carefully, but it is nonetheless expected to challenge second homes purchasers wherever it can. This is because there’s clearly big sums of money at stake for HMRC if they can force second homeowners to pay the 3% stamp duty surcharge. So we will probably see many challenges and legal arguments over what constitutes an "uninhabitable" property.