Mudan & Anor v Revenue and Customs: A Look into Uninhabitable Property Relief for SDLT
Posted on 29th October 2024 at 11:21
This month has seen yet another Upper-tier Tribunal fall in favour of the tax authorities, this time looking at the application of Uninhabitable Property Relief.
We regularly talk about the scrutiny SDLT claims come under by tax authorities due to the number of unregulated advisors operating in the area, and the caution that must be taken when considering making a claim.
This month has seen yet another Upper-tier Tribunal fall in favour of the tax authorities, this time looking at the application of Uninhabitable Property Relief.
Background of the Case
Mr and Mrs Mudan purchased a property in London and paid SDLT on the purchase on the basis that it was a residential property. However, Mr Mudan later inspected the property and found it in severe disrepair and unfit for his young family. He therefore claimed a partial repayment of the SDLT on the basis that the property was uninhabitable and SDLT was payable at a lower rate than originally paid.
HMRC challenged this and the First-tier Tribunal ultimately sided with the tax authority, ruling that despite its condition, the property was suitable for use as a dwelling.
This case was then appealed to the Upper-tier Tribunal.
Key Legal Issue: Uninhabitable Property Relief
Uninhabitable relief looks at whether a property is suitable for use as a dwelling and if the property is deemed as unsuitable for use as a dwelling, non-residential rates of SDLT can apply. These are lower than the residential rates.
However, the issue is that what HMRC would deem as suitable for use as a dwelling is very different to what the average person would be happy to live in!
In this most recent case Mr and Mrs Mudan argued that their property, that had been uninhabited for a period of months by the date of purchase, was unsafe to live in and significant work would be required to make the property habitable. Such work included electrical work of rewiring, installation of a new boiler, water pumps and pipes, a new roof over the boiler house, repair to broken windows, stripping the kitchen and pest control.
The tribunal had to determine whether the property's disrepair was significant enough to qualify for this relief. Although Mr. Mudan argued the home was unsafe, the tribunal found that it was still capable of being lived in, rejecting the claim.
At this point I would like to draw your attention to the HMRC guidance on claiming uninhabitable property relief (SDLTM00385) as it provides further insight as to what may be deemed as an uninhabitable property:
A property might not be considered “suitable for use” as a dwelling (sometimes referred to as uninhabitable) on the basis that it has been damaged to the extent that normal repair work, replacement or modernisation cannot resolve the issues. However, there is a clear distinction between a derelict property and a dwelling that is in need of modernisation, renovation or repair, which can be completed without first addressing structural defects that would make the property dangerous to work on and/or live in. If the building was used as a dwelling at some point previously, it is fundamentally capable of being so used again.
The Appeal
The appeal to the Upper Tribunal followed the First-tier Tribunal’s conclusion that the property was suitable for habitation, despite its condition. This ruling serves as a reminder that claiming uninhabitable property relief requires clear evidence that a property is completely unfit for living, beyond mere disrepair.
Implications for Property Buyers
This case highlights the challenges in applying SDLT reliefs. Property buyers must be cautious when claiming tax reductions based on property condition and ensure they fully understand the requirements. Seeking expert property tax advice can help avoid disputes with HMRC and ensure compliance with SDLT regulations.
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