This was the question facing a recent tribunal (in P N Bewley Ltd v HMRC [2019] UKFTT 65(TC)). The distinction mattered because of the higher rates of stamp duty which apply to a residential property either where the property is an individual’s second property or, as here, when the property is acquired by a company.
The property in question was a bungalow which had previously been somebody’s home but was unoccupied at the time of the purchase. It was in a poor state; indeed, it was described in one survey as a ‘derelict bungalow to be demolished’. White asbestos had been found in many places, including the floor tiles and roof slates, the heating system had been removed, water had been disconnected and some floorboards were missing.
HMRC argued that despite its dilapidated state the building clearly was a dwelling and could be renovated to form a perfectly good home. The tribunal took a different view. As ever it started by looking at what the legislation actually said. The test laid down by law is that the building ‘is used, or suitable for use as a dwelling’. Clearly it wasn’t actually being used as a dwelling at the point of sale. So, was it ‘suitable’ for use as a dwelling?
The judge considered what exactly was meant by that term. The test was not whether it was ‘capable’ of use. As he said, ‘a passing tramp or group of squatters could have lived there but that was not enough’. Equally, the property could no doubt have been modernised and renovated and then have been used as a dwelling. But again, that was not the test. Had the draftsman wanted to use that test he could have used a phrase such as ‘capable of being used as a dwelling after renovation’. The actual wording couldn’t be clearer. You had to look at the state of the property on the day of purchase and ask the simple question ‘was it suitable on that day for use as a dwelling’. Common sense said that in this particular case it was not. Therefore, the property was not a dwelling and the additional rate of SDLT didn’t apply.
This is an excellent example of how any tax dispute should be dealt with. You look at what the legislation actually says and then apply it to the facts. HMRC had gone wrong by making a few short cuts and assumptions about what the test actually was, rather than using the statutory words. The judge pointed out that the word ‘suitable’, which is the crux of the dispute, didn’t actually appear anywhere in the written case which HMRC put forward in support of their argument. This omission seems astonishing.
Tax advisers can sometimes be seen by clients (and I dare say even by colleagues) as being excessively pedantic and removed from the real world. But speaking as a pedant, I am immensely reassured by judgments like this, because they show that paying proper attention to what words actually mean does get you to the right place.
The whole judgment is well worth reading, but even if you can’t face it all, do look at footnote 7* which will no doubt put a smile on your face.
Andrew Hubbard, consultant, RSM UK (RSM’s Weekly Tax Brief)
*For the benefit of readers not tempted to read the full judgment, footnote 7 says: ‘Reading Irish decisions can give the impression at times that the arguments put forward owe more to the imagination and writings of Flann O’Brien/Myles na gCopaleen (Brian O’Nolan) than a study of the law.’
Home >Articles > When is a dwelling not a dwelling?
When is a dwelling not a dwelling?
This was the question facing a recent tribunal (in P N Bewley Ltd v HMRC [2019] UKFTT 65(TC)). The distinction mattered because of the higher rates of stamp duty which apply to a residential property either where the property is an individual’s second property or, as here, when the property is acquired by a company.
The property in question was a bungalow which had previously been somebody’s home but was unoccupied at the time of the purchase. It was in a poor state; indeed, it was described in one survey as a ‘derelict bungalow to be demolished’. White asbestos had been found in many places, including the floor tiles and roof slates, the heating system had been removed, water had been disconnected and some floorboards were missing.
HMRC argued that despite its dilapidated state the building clearly was a dwelling and could be renovated to form a perfectly good home. The tribunal took a different view. As ever it started by looking at what the legislation actually said. The test laid down by law is that the building ‘is used, or suitable for use as a dwelling’. Clearly it wasn’t actually being used as a dwelling at the point of sale. So, was it ‘suitable’ for use as a dwelling?
The judge considered what exactly was meant by that term. The test was not whether it was ‘capable’ of use. As he said, ‘a passing tramp or group of squatters could have lived there but that was not enough’. Equally, the property could no doubt have been modernised and renovated and then have been used as a dwelling. But again, that was not the test. Had the draftsman wanted to use that test he could have used a phrase such as ‘capable of being used as a dwelling after renovation’. The actual wording couldn’t be clearer. You had to look at the state of the property on the day of purchase and ask the simple question ‘was it suitable on that day for use as a dwelling’. Common sense said that in this particular case it was not. Therefore, the property was not a dwelling and the additional rate of SDLT didn’t apply.
This is an excellent example of how any tax dispute should be dealt with. You look at what the legislation actually says and then apply it to the facts. HMRC had gone wrong by making a few short cuts and assumptions about what the test actually was, rather than using the statutory words. The judge pointed out that the word ‘suitable’, which is the crux of the dispute, didn’t actually appear anywhere in the written case which HMRC put forward in support of their argument. This omission seems astonishing.
Tax advisers can sometimes be seen by clients (and I dare say even by colleagues) as being excessively pedantic and removed from the real world. But speaking as a pedant, I am immensely reassured by judgments like this, because they show that paying proper attention to what words actually mean does get you to the right place.
The whole judgment is well worth reading, but even if you can’t face it all, do look at footnote 7* which will no doubt put a smile on your face.
Andrew Hubbard, consultant, RSM UK (RSM’s Weekly Tax Brief)
*For the benefit of readers not tempted to read the full judgment, footnote 7 says: ‘Reading Irish decisions can give the impression at times that the arguments put forward owe more to the imagination and writings of Flann O’Brien/Myles na gCopaleen (Brian O’Nolan) than a study of the law.’
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