An area rife with misleading advice and false claims is that of uninhabitable properties and it is an area that HMRC are intent on cracking down on. HMRC’s own guidance states that:
“A very high proportion of the SDLT repayment claims that HMRC receives in relation to this area are wrong. Customers should be cautious about being misled by repayment agents into making incorrect claims.”
It has also been reported that HMRC have found that 95% of uninhabitable claims are false and some have argued that this may lead to criminal prosecutions of Taxpayers and dishonest tax agents.
What is an uninhabitable property?
An uninhabitable property is a property which is not suitable for use as a dwelling, in reality this will only apply to those properties with severe structural defects or those which pose a severe risk to health where those defects or risks cannot be repaired.
It is important to bear in mind that suitable for use as a dwelling does not necessarily mean suitable for immediate occupation allowing for some defects which need to be addressed before the purchaser moves in.
What will be considered a repair?
According to the First Tier Tribunal (FTT) in Mudan, standard repair, renovation, or maintenance work—such as installing a new boiler or heating system, addressing damp issues, replacing floors or replacing kitchens and bathrooms which were temporarily removed—does not render a building uninhabitable. Additionally, recent occupation of the building can serve as a strong indication that it remains habitable.
This approach was upheld by the Upper Tribunal (UT) following an appeal by the Taxpayer against the FTT decision.
Why does it matter if a property is uninhabitable?
If a property is uninhabitable at the time of purchase SDLT will be payable at the non-residential rate meaning that it is capped at 5% with no higher rate (an additional 5%) for additional properties or non-resident surcharge (an additional 2%) for those individuals not resident in the UK. This will result in huge savings making it an attractive way to attempt to reduce SDLT.
Be cautions…
A false claim will not only result in HMRC reclaiming the underpaid SDLT but will result in an additional interest payment (currently 8.5% per annum) and the risk of penalties, which can be as high as 100% of the underpaid tax. HMRC do also have the power to prosecute false and dishonest claims and it is believed that dishonest tax agents operating in this area will be pursued vigorously.
Relatus have advised against a number of uninhabitable claims where the Taxpayer has falsely been led to believe that they have a case and we will only pursue a claim if it meets HMRC’s strict guidelines and follows the FTT and UT’s approach in this area.
If you believe the property you are purchasing is uninhabitable, or a property you purchased in the last 4 years was uninhabitable at the time of purchase, contact the team at Relatus so that we can advise you whether the property will meet the criteria.
