A couple are facing a £100,000 stamp duty bill following a Court of Appeal decision related to the distinction between residential and non-residential property.
The appeal was brought by Mr and Mrs Mudan, who had argued the rate of stamp duty to be paid on their detached London house should be classified at the non-residential rate due to the property being uninhabitable.
Following the purchase of the property – which had been inhabited at the time – the couple had undertaken extensive renovations. After initially paying stamp duty at the residential rate, they amended their return to claim the property was no longer habitable due to the ongoing works, arguing stamp duty should be re-calculated at the non-residential rate of 5% of the property’s value.
According to the judgment, the difference between the amount payable for a residential and non-residential property was ‘of the order of £100,000’.
The single ground of appeal brought by the Mudans centred around the definition of a dwelling being ‘suitable for use’, and therefore classed as a residential property. The First-Tier Tribunal (FTT) and Upper Tribunal (UT) had both argued that, as the house was inhabited when the Mudans bought it, it was within the scope of a residential property.
The Mudans argued that both the FTT and UT had misinterpreted the definition, and claimed that to qualify as ‘residential property’ the building must be ‘suitable for use’ as a dwelling.
In his evidence, Mr Mudan agreed that the property was residential in nature and had been used as a dwelling at the time of purchase. However, he argued that it would need complete rewiring, significant plumbing work, the kitchen stripped back to bare walls and replaced, and broken windows and doors repairing. As such, he claimed the building was not ‘suitable for use as a dwelling’.
In their written judgment, the Court of Appeal judges cited the extensive case law they had consulted when assessing the statutory interpretation and application of relevant legislation and case law.
Dismissing the appeal, Lord Justice Lewison said:
“The ordinary speaker of English would, in my view, characterise property as “residential property” if it was the sort of property that people live in. If property previously used as a dwelling was undergoing extensive refurbishment such that it could not be lived in for the time being, but would be once the work was complete, I would be very surprised if the ordinary speaker of English would remove that property from the category of “residential property”. As Mr Mudan himself accepted, the property “was still residential in character” at the time of the purchase. If, as a matter of ordinary language, it was not residential property: what was it?”
The lengthy discussion surrounding the merits of the case and the intended meaning of applicable statute and case law illustrate the complexities of stamp duty, and the importance of consulting specialist advisers.
One Response
There is so much professional judgment needed these days to fill out and SDLT return. Getting it wrong is expensive either way. You might overpay because you have not claimed a legitimate relief to which you are entitled. Or in this case – underpay – and get a £100,000 tax bill. Plus the legal costs.