P N Bewley Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 January 2019 |
| Neutral Citation | [2019] UKFTT 65 (TC) |
| Date | 28 January 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Richard Thomas, William Haarer
Mr Paul and Mrs Nikki Bewley, directors, appeared for the appellant
Ms Helen Davies, litigator HM Revenue and Customs, appeared for the respondents
Stamp duty land tax (SDLT) – Appeal against assessment to higher rates of tax under FA 2003, Sch. 4ZA – Whether building suitable for use as dwelling – No – Self-assessment as amended by HMRC reduced to apply rates appertaining to non-residential property.
The First-Tier Tribunal (FTT) upheld an appeal against the application of the higher rates of tax to the land transaction in question on the grounds that the building concerned was not used or suitable for use as a dwelling at the effective date of the transaction. As a consequence, the correct rates of tax applicable to the transaction were those for non-residential or mixed property, and the assessment was reduced accordingly.
The appellant company had purchased a bungalow described as derelict and in poor internal condition for consideration of £200,000, and, on filing the land-transaction return, self-assessed and paid tax of £1,500, applying the rates for residential property contained in Table A in FA 2003, s. 55(1B). HMRC opened an enquiry into the return, as a result of which the tax payable was revised to £7,500, on the grounds that the transaction was one subject to the higher rates of SDLT as falling within FA 2003, Sch. 4ZA, para. 4, being a purchase by a non-individual of a major interest in a single dwelling, satisfying Conditions A and B in FA 2003, Sch. 4ZA, para. 3. This decision was confirmed by an HMRC review, although the appellant company had not requested one. The grounds of appeal to the Tribunal were that, due to its state of extreme dilapidation, the bungalow was neither used nor suitable for use as a dwelling and, thus, by reference to FA 2003, Sch. 4ZA, para. 18(2)(a), did not count as a “dwelling”, the consequence being that the transaction in question was not a “higher-rates transaction” for the purposes of Sch. 4ZA.
Since it was not in dispute that the bungalow was not in use as a dwelling at the time of the transaction nor that it was a single dwelling, the sole issue before the Tribunal was whether it was suitable for use as a dwelling at that time. The bungalow had lain empty and the radiators, pipework and floorboards had been removed; furthermore, the extensive presence of asbestos made renovation or refurbishment an unviable proposition. Given this state of affairs, and by reference to the available authorities and to HMRC guidance, the Tribunal had no hesitation in holding that the bungalow was not suitable for use as a dwelling. The higher rates of SDLT under FA 2003, Sch. 4ZA were thus not applicable to the transaction.
Further, as it was not so suitable, the bungalow did not fall within the definition of “residential property” in FA 2003, s. 116(1), which provided that such property had to be a building used or suitable for use as a dwelling (or one in the process of being constructed or adapted for such use). It followed that the rates of tax applicable to the transaction were those in Table B in FA 2003, s. 55(1B), appropriate to non-residential or mixed property. Consequently, the correct tax payable was £1,000, and the Tribunal so determined.
HMRC did not help its case by citing grounds rightly dismissed by the Tribunal judge as irrelevant, but its main contention was essentially that the building had not ceased to be a dwelling merely by being left uninhabited and that the presence of asbestos did not prevent its being capable of renovation and reoccupation.
Nevertheless, the correct test is the condition of the building at the effective date of the transaction, irrespective of what may or did happen subsequently. Although the equivalent definitions of what is meant by a “dwelling” for the purposes of ATED (the annual tax on enveloped dwellings) and the Capital Gains Tax (CGT) charge on the disposal by a non-resident of a UK residential-property interest both allowed for temporary unsuitability for use as a dwelling to be disregarded in prescribed circumstances, there was no such disregard in Sch. 4ZA, as the Tribunal pointed out. Even HMRC guidance (in, e.g. Stamp Duty Land Tax Manual, para. ) concedes: “If a building is not in use at the effective date but its last use was as a dwelling, it will be taken to be “suitable for use as a dwelling” and treated as residential property, unless evidence is provided to the contrary” (author's emphasis). In the Tribunal's view, that evidence had been provided.
[1] This was an appeal by P N Bewley Ltd (“the appellant”) against the amendment of a stamp duty land tax (“SDLT”) return made by them on 8 February 2017. The amendment was made by Mr Joel Lord, an officer of the respondents (“HMRC”) and was notified to the appellant in a letter of 26 January 2018 giving the officer's conclusion of his enquiry into the return. The amendment increased the SDLT payable from £1,500 to £7,500.
[2] The return related to the purchase by the appellant of Rosemount, Hillcote, Weston-super-Mare (“Rosemount”).
[3] Our bundle contained the SDLT1 return, the correspondence between the officer, Mr Lord, and the appellant's solicitors, and several substantial documents appended to the correspondence. It also included some black and white photocopies of photographs of the building in question, which were difficult to examine, but we were immensely helped by Mrs Bewley showing us the originals on her mobile phone, from which we were also able to confirm the date they were taken.
[4] Mr and Mrs Bewley gave us oral evidence in explanation of the photographs and other documents and of their actions before the purchase. We accept their evidence without any reservation.
[5] In this section we make findings of fact from the documentary and oral evidence.
[6] From a notice of decision issued by North Somerset Council on 18 February 2016 to Mr R Cooke, the then freehold owner of Rosemount, we find that the description of Mr Cooke's application for planning permission was:
Demolition of existing dwelling and erection of replacement building
[7] We find from the evidence of Mr Bewley that the bungalow at Rosemount had been occupied by an elderly lady but the she had moved out in 2014 or earlier, some time before their purchase.
[8] From a demolition survey issued on 13 December 2016 commissioned by the appellant and prepared by Philip Love of Enfield Group Ltd we find that:
- Asbestos-containing materials had been identified during the Demolition Survey.
- The asbestos materials identified were in good condition with risk scores of 3 to 6 (out of 10). The recommendation for these materials was urgent removal.
- Building Notes showed that the heating system had been removed and the remains of hessian insulation was still under the floor boards.
- The survey was a disruptive, fully intrusive survey that involves destructive application techniques … involving breaking into floors, through walls voids ceilings ….
- Asbestos materials might remain identified buried in the fabric.
[9] From a survey, which was not a building survey, made by Andrew Forbes, Chartered Valuation Surveyors, and dated 16 November 2016 on behalf of Lloyds Bank in connection with the appellant's application for finance to build a new dwelling on the site of Rosemount, we find that the executive summary of the survey said that there was a building on the site described as a “derelict bungalow to be demolished”.
[10] In the survey itself under the heading “property” the description was:
The existing property is a derelict bungalow in poor internal condition, which we understand is to be demolished …
[11] They add that “we understand that the building is connected into the following services” and they show “Yes” against water, drainage, electricity and gas.
[12] Under “Condition and State of Repair” they say:
The existing property is in a poor state of repair and condition and will be demolished …
[13] Chrysotile (white asbestos) was found in floor tiles, celling panels, wall panels behind plasterboard, the soffit roofline, roof slates, the roof void and in the outer wall behind fibreboard.
[14] A letter of 19 February 2018 from the appellant to HMRC making its appeal said that while HMRC had researched the property (on the internet) and found that it was being marketed as an “ideal refurbishment project” in September 2014, the agent's details did not contain any photographs of the condition of the property at the time and the property had been left empty and deteriorated since then, not being habitable due to the removal of the heating, copper pipes and floorboards.
[15] They added that any refurbishment would mean disrupting the asbestos, and in support enclosed an email from Chris Penny of R M Penny (Plant & Demolition) Ltd, the demolition contractor for the bungalow, to Mrs Bewley dated 26 January 2018 said:
the former dwelling known as Rosemount was constructed circa 1950 using a typical prefabricated panel system which was common at the time comprising a timber frame and asbestos cement infill panel. … Living in a home with intact asbestos does not necessarily pose a health risk but these materials do deteriorate over time and when disturbed or damaged asbestos fibres can be released into the air … to successfully remove the asbestos cement materials from the dwelling necessitated in the structure being virtually dismantled in the process and therefore left uninhabitable.
[16] We are satisfied from the photos we saw dated November 2016 that the appellant's description in this letter was correct. We asked Mr Bewley about the demolition survey's reference to services being still connected, such as water. He said that this was correct though water had been turned off outside the building.
[17] On the...
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...the penalty assessments. [12] After the appeal was notified to the tribunal the tribunal published its decision in P N Bewley Ltd [2019] TC 06951. In that case the FTT held that a derelict bungalow affected/infused with asbestos was not a dwelling for the purposes of Schedule 4ZA FA 2003 be......