insideKENT Magazine Issue 87 - June 2019 | Page 171

BUSINESS Know What You Are Buying by Rick Schofield, Partner at Wilkins Kennedy Ashford LAND DEVELOPERS, BUILDERS AND INVESTORS ALL KNOW THAT STAMP DUTY LAND TAX (SDLT) IS A SIGNIFICANT COST IN THE ACQUISITION OF LAND. THIS IS PARTICULARLY SO WHEN A COMPANY IS PURCHASING RESIDENTIAL LAND WHERE THE ADDITIONAL 3% WILL ALSO APPLY IF ONE OR MORE DWELLINGS ARE ACQUIRED. The outcome of a recent case in the First Tier Tribunal (the lowest tax court) provides a reminder of how important it is to look closely at the facts of each case. The case concerned the purchase of a house in Weston Super Mare which was marketed as an ‘ideal refurbishment project’. The tax payer (P N Bewley Limited) submitted its SDLT return on the basis it had acquired residential land but not a dwelling and paid £1,500 of tax. HMRC opened an enquiry and determined that the 3% surcharge applied as a dwelling had been acquired by a company and demanded total tax of £7,500. The Tribunal’s decision was that both the tax payer and HMRC were wrong. What the taxpayer had acquired was non-residential land and as such the tax due was only £1,000. If the land had been purchased for £500,000 rather than £200,000 then the options for the tax payable would have been: Taxpayer HMRC Decision by Tribunal £5,000 £30,000 £14,500 The key to the decision is whether the land being acquired is residential or non- residential. The SDLT legislation only defines what is residential. So if land is not residential then by default it is non-residential. Non-residential land for SDLT is often described as commercial land, but as this case demonstrates, caution is needed. The correct identification of land for SDLT purposes as it sets the rates of tax to be used: Residential Residential +3% Non-Residential 0-125,000 0% 3% 125,001 -250,000 2% 5% 250,001 – 925,000 5% 8% 925,001 – 1,500,000 10% 13% 1,500,001 + 12% 15% What is residential property for SDLT purposes? it was not. There is a useful passage in the judgement: In essence, residential property for SDLT purposes is a building which is a dwelling and any gardens/grounds associated with that dwelling. “No doubt a passing tramp or group of squatters could have lived in the bungalow as it was on the date of purchase. But taking into account the state of the building … with radiators and pipework removed and with the presence of asbestos preventing any repairs or alterations that would not pose a risk to those carrying them out, we have no hesitation in saying that in this case the bungalow was not suitable for use as a dwelling.” So, the first step is to identify if there is a dwelling. A building is classed as a dwelling if it is capable of being used as a dwelling at the time of purchase. If a building is derelict, it is not capable of being used as a dwelling and consequently it must be non-residential for SDLT purposes. The next step is to consider the land being acquired with the building. If this is the garden and grounds of a building which is not a dwelling then the land is also classed as non- residential. The question then becomes, is a building capable of being used as a dwelling, and in the PN Bewley case The lesson to take away from this case is to consider the state of the property being acquired, as this will allow appropriate reporting and payment of tax to HMRC. Wilkins Kennedy can advise you on potential purchases to ensure the right amount of tax is paid and also review recent purchases to see if there might be repayments of SDLT available. For more information, please get in touch. Contact Us Every situation is different and I would strongly recommend that you seek professional advice before acting. Contact the tax team at Wilkins Kennedy to see how we can help. Local offices: Ashford: 01233 629 255 / Canterbury: 01227 454 861 Maidstone: 01622 690 666 / Orpington: 01689 827 505 Sandwich: 01304 249 997 0-150,000 0 150,001 – 250,000 2 250,000 + 5 [email protected] www.wilkinskennedy.com wilkinskennedy 171