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If you are a property investor or landlord and you are thinking of purchasing abandoned or uninhabitable property, then you should be aware of potential tax reliefs or refunds available to you.
Purchasing abandoned or uninhabitable or derelict property can offer property investors an opportunity to make a profit on renovating and reselling the property. But there are also some tax benefits to investors that purchase a qualifying abandoned or uninhabitable property.
In this blog we answer all your questions on how Stamp Duty Land Tax works for abandoned or uninhabitable properties.
Understanding uninhabitable property and SDLT
Investors must understand what’s different between derelict & unhabitable properties concerning SDLT, before they make a purchase. The abandoned house or property may just require renovation or repairs, for example, it is not equipped with the necessities such as a functioning bathroom or kitchen. Many items like this will NOT distinguish it as uninhabitable in the eyes of HMRC.
These types of distinctions are important for SDLT because the uninhabitable property may be eligible for non-resident rates of SDLT if it is deemed uninhabitable or derelict. Property investors should be cautious when looking at property as there are very few properties that will be classed as uninhabitable or derelict property in the eyes of HMRC.
What makes a property uninhabitable or derelict property?
This is a bit of a grey area as HMRC dont currently give specific criteria for what property qualifies as an uninhabitable property. However, under the Housing Act of 1967, for a property to be deemed habitable it must have the necessary facilities to meet basic living needs for human habitation.
What qualifies as a derelict property for SDLT purposes?
Often HMRC distinguish uninhabitable or derelict as it having been damaged to the extent that normal repair work, replacement or modernisation cannot resolve the issues or if the property cannot sustain human occupancy. For example, if a property is in such a poor state that it will:
- affect your health seriously
- put you at risk of physical harm or injury
- mean you can’t make full use of your home
HMRC guidance provides examples of issues that would exclude a residential property from being suitable for use as a dwelling, these are as follows:
- Existence of high levels of asbestos that cannot be removed without de-constructing a property before repair works can be undertaken.
- Presence of high radioactive pollution.
- Structural damage making the building unsuitable or unstable for human habitation.
- High probability of walls collapsing.
- Hazards present that could result in a Local Authority issuing a Prohibition Notice restricting the use of the property.
- Leaking roof or major damage to the roof causing excessive damp and rot impacting health.
- Growth of plants on the structural areas of the building impacting safety and foundation.
What won’t be classed as uninhabitable or derelict?
It’s often easier to understand the types of things that WON’T QUALIFY the property as uninhabitable or derelict. For example, repairs, renovations and issues that will not make a property unsuitable for use as a dwelling include, but are not limited to:
- The temporary removal of bathroom or kitchen facilities before sale.
- Substantial repairs required to windows, floors, or a roof.
- Replacement boiler and pipework or
- Unsafe electrical wiring.
- The need to switch services back on.
- An infestation of pests.
- Damp proofing required or plasterboard damage.
- Flood damage.
Because HMRC deem these to be common issues that can be rectified relatively quickly or are common improvements and/or maintenance attached to residential properties, they do not constitute structural changes that would mean the building is no longer suitable for use as a dwelling.
Stamp Duty Land Tax (SDLT) on uninhabitable / derelict Property
Do you pay stamp duty on an uninhabitable property?
If a property is deemed to be uninhabitable, then non-resident rates apply to the transaction, rather than residential rates. Non-resident rates are cheaper than residential rates of SDLT, so this offers investors an opportunity to reduce costs when purchasing uninhabited and derelict properties.
When purchasing abandoned property, derelict property, or uninhabitable property, the buyer may be exempt from paying Stamp Duty Land Tax (SDLT) or qualify for a tax refund.
When a building is not deemed "suitable for use as a dwelling," non-residential rates apply when buying derelict property or an abandoned and uninhabitable building.
The current non-residential rates for SDLT are as follows:
| Property or lease premium or transfer value | SDLT rate |
|---|---|
| Up to £150,000 | Zero |
| The next £100,000 (the portion from £150,001 to £250,000) | 2% |
| The remaining amount (the portion above £250,000) | 5% |
Can you claim back stamp duty for uninhabitable property?
If you’ve purchased an uninhabitable property, you could be eligible for an SDLT refund. To maximise your chances of securing a refund, it’s important to understand the eligibility requirements and be prepared to provide the necessary documentation to support your claim.
What is the application process to reclaim stamp duty land tax for uninhabitable property?
The application process for an SDLT refund on uninhabitable properties is as follows:
- Contact a professional advisor to help you to make a claim.
- They are likely to carry out an in-depth assessment of the property’s structural integrity and overall condition.
- This will be followed by gathering of evidence to prepare for the formal submission of a claim to HMRC.
- You will be required to provide any necessary documentation such as supporting documents like inspection reports and identification documents.
- Your advisor can then submit a refund request to HM Revenue and Customs (HMRC). This can be done either online or by post.
How long does a stamp duty refund take?
Providing you supply HMRC with all the relevant information, your claim should be processed within 15 days. However, with backlogs of work, it can take longer than this due to delays with HMRC.
Summary
Buying derelict or uninhabitable properties could potentially save you money on Stamp Duty Land Tax. However, there are certain criteria to class a building uninhabitable or derelict. It means that there is substantial repair required and it is not suitable for use or human habitation or will pose serious health risks. Empty houses in a minor state of disrepair will not qualify. Truly derelict properties are not common to find and purchase. Make sure you are certain a purchased property qualifies by checking things like local government council tax records or getting the property inspected by a qualified advisor.
However, if you’re purchased a derelict property that qualifies for a Stamp Duty rebate, then dns accountants can help you to claim this and advise you on any tax planning or Stamp Duty questions you have.
Contact dns on 03300 886 686 or email us on enquiry@dnsaccountants.co.uk for more help and advice on stamp duty tax refunds and property expert advice.
Uninhabitable and derelict property frequently asked questions
Recognising the signs of uninhabitable living conditions is the first step in addressing them.
It may be beneficial to understand council tax listings. In England and Wales, the Council Tax Band Lists are maintained by the Valuation Office Agency. Decisions regarding banding are made by individuals called Listing Officers. For council tax purposes, properties, or structures suitable for habitation are banded for council tax.
Often when repairs and maintenance are substantial and require structural alteration, major renovation, or other alteration during which the inhabitants cannot live inside, the listing officer can have the council tax band deleted.
However, a Listing Officer may not remove the property or building for council tax purposes because repairs are reasonable enough to allow the residents to live in the property while the maintenance or repair work is being done.
Yes, you can. However, stamp duty is still applicable if a property is uninhabitable, but it will be charged at the non-residential SDLT band rate rather than the higher residential rate, thereby saving you Stamp Duty Land Tax at higher rates.
A derelict property is an abandoned, unusable, or vacant building that has been uninhabited for a considerable amount of time and is in desperate need of repair.
Often HMRC distinguish uninhabitable or derelict as it having been damaged to the extent that normal repair work, replacement or modernisation cannot resolve the issues. Properties that are derelict or uninhabitable may be due to an extremely bad state of repair that is liable to put the resident‘s health and safety at risk of bodily harm or injury and would therefore prevent full use of the property.
Getting a mortgage on an uninhabitable property can be difficult because mortgage lenders typically prefer to finance properties that are in good condition and can be occupied immediately. Mortgages usually use the property as collateral for the mortgage (i.e. if you can‘t keep up repayments then the lender has the right to repossess the property). So, if the property is considered an uninhabitable property or a derelict property, then the repossession and sale of the property may not cover the amount loaned.
However, that said, it is possible to get a mortgage on an uninhabitable property if you‘re planning to refurbish the property to make it habitable/liveable. Seek advice from a mortgage broker.
Case law is where a precedent is set in legal cases previously fought.
In the case of PN Bewley vs HMRC, the case had a significant role in SDLT claims involving uninhabitable properties. The case involved a derelict bungalow deemed unsuitable for residential use, resulting in non-residential SDLT rates and no 3% supplement.
The tribunal ruled in favour of the property buyer and therefore set a precedent for future claims involving uninhabitable properties.
Any questions? Schedule a call with one of our experts.
Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning.
I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents.
I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.
Siddharth Agarwal
I am a Chartered Tax Advisor (OMB) and ACCA. I have 9+ years of experience in owner-managed business taxation issues, company reorganisations, property taxation, and succession planning.
I also work with private clients on bespoke tax planning strategies for trusts, residence status, and non-residents.
I aim to fulfil my professional duties towards my clients and keep them satisfied, my utmost priority. I believe in establishing and maintaining businesses and personal relationships as the key to mutual growth.
