Market News

BY Joe Wright

• Fixer-uppers trying to exploit a stamp duty loophole by buying “uninhabitable” properties face the threat of hefty penalties, HMRC has warned.

  A landmark Court of Appeal judgment ruled that homes in need of repair still attract traditional stamp duty rates.

  Rogue tax agents often suggest to clients that they can reclaim stamp duty they have already paid by informing HMRC that the property is uninhabitable due to damage.

  This classification would render the property as non-residential – paving the way for a significant tax cut.

  Yet HMRC has stressed that claims often leave the homeowner liable for the full tax bill, plus penalties and interest.

  The recent tax rebate claim to be dismissed by the Court of Appeal involved the purchase of a £1.75m house in London by Amarjeet and Tajinder Mudan.

  Documents show they originally paid £177,000 in stamp duty in August 2019, but Mr Mudan was later told by a consultant they could claim for a lower rate due to the state of the property.

  There was no structural damage, however. Defects included loose electrics, a boiler ripped from the wall, an “unbearable smell” in the vandalised kitchen, rat droppings and a flooded basement.

  Mr Mudan stressed there was a danger to life because of the state of the electrics, and the property was therefore uninhabitable, and the Mudans requested a non-residential stamp duty rate, bringing the bill down to £77,250.

  HMRC originally agreed and repaid £99,750 but later opened an inquiry and reinstated the full £177,000 charge.

  ‘Still suitable as a dwelling’

  After going through the First-tier Tribunal, Upper Tribunal and most recently the Court of Appeal, HMRC’s demand for the full receipt was upheld. The property was not deemed to be in such a state of disrepair that it should be granted tax relief.

  The ruling is a key barometer for future cases and will serve as a warning for buyers of fixer-uppers hoping to exploit the “uninhabitable” loophole.

  Court papers stress that properties eligible for a non-residential discount are limited to those which require demolition, or others with “sufficiently fundamental problems” such as a high risk of structural collapse or the building being radioactive.

  Homes in need of major repairs, such as needing a new boiler, new flooring or are suffering from damp issues, will continue to attract the full stamp duty rate.

  HMRC said the court ruling reaffirms its long-standing view that a property requiring repairs is “still suitable for use as a dwelling”.

  It said it is taking decisive action on those who undermine the tax system with “spurious stamp duty repayment claims”.

  Repay stamp duty – and more

  Anthony Burke, HMRC’s deputy director of compliance assets, said the ruling was a “major win”.

  He said: “Homebuyers should be cautious of allowing someone to make a stamp duty repayment claim on their behalf.

  “If the claim is inaccurate, you could end up paying more than the amount you were trying to recover.”

  Tax agents working on behalf of buyers typically take a substantial cut from a successful stamp duty claim. If this is later deemed “spurious”, HMRC warned the buyer will be liable to cover the full costs, interest and penalties if the agent refuses to cooperate.

  Johnny Drysdale, a property lawyer at Keystone Law, said: “A very high proportion of these claims are rejected by HMRC because the threshold of showing that a property is derelict and not capable of habitation is high.

  “If a property has at one time been used as a dwelling, it is likely to be considered suitable for use as a dwelling at the time of the transaction, even if the property cannot be immediately occupied.”