HMRC has recently rejected a significant number of Stamp Duty Land Tax (SDLT) refund claims based on properties supposedly being “uninhabitable.” According to HMRC, over 95% of these claims are invalid, prompting them to clarify their position and warn taxpayers about potentially misleading advice from refund agents.
What is SDLT?
Stamp Duty Land Tax applies to property purchases in England and Northern Ireland above the following thresholds:
- £250,000 for residential properties
- £425,000 for first-time buyers purchasing residential property worth £625,000 or less
- £150,000 for non-residential land and properties
Note that these thresholds will change from April 1, 2025, dropping to £125,000 for residential properties and £300,000 for first-time buyers purchasing property worth £500,000 or less.
Additionally, a higher 5% rate applies from October 31, 2024, on the purchase of additional properties, and different rules apply for non-UK residents. Scotland and Wales operate under different tax regimes.
When purchasing a property which is classed as uninhabitable or abandoned, the buyer may be exempt from SDLT liabilities or qualify for a tax refund on the amount paid.
The True Definition of “Uninhabitable”
In HMRC’s view, only a small minority of properties can genuinely be classified as “not suitable” for dwelling purposes. These are properties with severe structural issues that make them dangerous to inhabit or work on. Importantly, “uninhabitable” doesn’t simply mean a property needing repairs or renovation.
A recent Upper Tier Tax Tribunal decision reinforced several key principles:
- Being suitable for use as a dwelling isn’t the same as being ready for immediate occupation.
- Assessment should focus on whether the building maintains the fundamental characteristics of a dwelling and is structurally sound.
- A property’s previous use as a dwelling is relevant when determining if it remains suitable for such use.
- The critical question is whether necessary repairs and renovations have stripped the building of its essential dwelling characteristics.
What Doesn’t Make a Property Uninhabitable?
HMRC has clarified that the following issues do NOT render a property unsuitable for use as a dwelling:
- Temporary removal of bathroom or kitchen facilities before sale
- Need for substantial repairs to windows, floors, or roofs
- Replacement of boiler and pipework
- Unsafe electrical wiring
- Utilities requiring reconnection
- Pest infestation
- Need for damp proofing or damaged plasterboard
- Flood damage
Getting Help with SDLT Claims
While many claims are rejected, legitimate opportunities for SDLT refunds do exist. For example, if you purchase an “additional” property before selling your previous main residence, you may be eligible to apply for a refund of the higher rate SDLT paid. For further information and assistance with navigating these complex rules, please don’t hesitate to contact our team of property tax experts. Email hello@ormerodrutter.co.uk or call 01905 777600 to speak to a member of the team.
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