A recent court ruling could potentially open the way to challenges to the 3% stamp duty surcharge levied on additional homes.

It could offer an opportunity for those who have already paid the charge to request a refund from HM Revenue and Customs (HMRC) – and could set a precedent for other buy-to-let investors.

What’s the background?

Since April 2016, buyers have had to fork out an extra 3% in stamp duty when buying a second residential property for £40,000 or more, such as a holiday home or buy-to-let.

HMRC calls it the ‘Higher Rates on Additional Dwellings’ or HRAD for short.

What’s happened now?

A recent tax tribunal in Bristol found in favour of Paul and Nikki Bewley, and said they didn’t have to pay this 3% charge as they were buying a property which was, at the time, uninhabitable – even though HMRC contested it.

The Bewleys purchased a derelict bungalow in Weston-Super-Mare for £200,000 as a buy-to-let investment in January 2017.

At the time, the property was riddled with asbestos and had no central heating – and was not fit to live in.

The couple decided to demolish the original building so they could build a new home in its place.

They did so in the belief they would not be liable for the 3% surcharge for purchasing a second home. 

How much stamp duty did they pay?

When the Bewleys bought the property, they paid the normal rate of stamp duty of £1,500.  However, they were later told by HMRC they should have paid £7,500.

What does the law say?

According to the Housing Act of 1967, a property must have a cooking and bathing facilities and a lavatory to be deemed habitable.

What did HMRC say?

HMRC contested this and said it believed the higher rate of stamp duty was applicable on the grounds that a property was capable of being used as a dwelling sometime in the future.

What did the tribunal rule?

However, the tribunal ruled against HMRC and sided with the Bewleys, stating they shouldn’t be liable for the 3% surcharge because the property was not fit to live in immediately.

Due to the ruling, the couple ended up only having to pay the standard rate of stamp duty – a sum of £1,500.

Who does this affect?

Experts say this landmark case could open the flood gates for hundreds of claims from buy-to-let investors who paid the surcharge for the purchase of properties that needed renovation.

This could mean homebuyers who voluntarily overpaid on their tax will now seek to claw back millions of pounds in refunds from the taxman.

Specialist buy-to-let broker, Commercial Trust Limited, says this judgement suggests buy-to-let investors may have a case for exemption from the 3% surcharge if they are buying a property that is uninhabitable at the time of purchase.

It adds that potentially, this ruling could represent an opportunity for retrospective claims from buy-to-let investors who have paid the additional charge on properties that were uninhabitable at the time they were bought.

What does this mean for investors?

This verdict will come as welcome news to the ears of buy-to-let investors who have been hit from all sides recently by a combination of higher stamp duty costs, the loss of tax reliefs and stricter mortgage lending criteria.

This has made it harder for many to generate a decent income and led to many investors quitting the market.

Going forward, buy-to-let investors eager to avoid the 3% surcharge will try to look to take advantage of this loophole by purchasing properties that are derelict or uninhabitable.

What will happen next?

HMRC says it is considering the judgement carefully. But it is also expected to challenge people wherever it can – as there’s a great deal of money at stake if HMRC can force additional homeowners to pay the 3% stamp duty surcharge.

However, going forward, we could expect to see major legal arguments over what constitutes a ‘dilapidated home.

Top 3 takeaways

• HMRC loses a court case against a couple who were charged additional rate stamp duty on a property that was uninhabitable at the time of purchase

• Homebuyers who overpaid the tax in the same way could now seek to claw back millions from the taxman

• New investors may may take advantage of new loophole to avoid the 3% surcharge.

Just 165,090 new homes were built in England in 2018, well short of the Government’s target to have 300,000 additional properties completed every year.

There was also no increase in the number of properties started during the year compared with 2017, despite a raft of government measures to accelerate housebuilding levels.

Most worryingly of all, the Ministry of Housing, Communities and Local Government figures showed a sharp fall in building levels during the final quarter of the year, with new starts dropping by 8% compared with the previous three months.

The housebuilding industry has failed to recover since the global financial crisis, with the number of new properties started in the final quarter of the year still 17% lower than the peak reached in the first quarter of 2007.

It appears unlikely that the Government will fulfil its 2015 pledge to build one million new homes by the end of 2020.

Why is this happening?

Housebuilding levels are being held back by a number of factors, ranging from a shortage of labour and building materials to the length of time it takes to get planning permission on land.

The sector has also been impacted by the slowdown in the wider housing market as a result of Brexit uncertainty and stretched affordability.

Who does it affect?

The low number of new properties being built means the mismatch between supply and demand looks set to continue, which will put further upward pressure on prices.

The situation is bad news for anyone who wants to get on to the property ladder or trade up it.

Estimates for the number of new homes the UK needs to build each year to keep pace with population growth range from 240,000 to 340,000.

But housing completions have not reached even the lower end of this level since the 1970s.

What’s the background?

In September 2015, the Government pledged to deliver one million new homes by the end of 2020.

But with just two years to go, only 504,650 new properties have been completed in England.

Additional homes will have been added to the country’s housing stock through conversions and change of use, although homes created in this way only reach the low tens of thousands each year.

In its election manifesto in 2017, the Conservative reaffirmed the commitment to build one million new homes by 2020, adding a further pledge to build an additional 500,000 properties on top of this target by the end of 2022.

The Government has also previously stated that it plans to increase the housing supply by 300,000 new properties a year by the mid-2020s, as part of a five-year £44 billion housing programme.

Last year housebuilding levels reached a 31-year high, but at 220,000 the figure was still significantly below this target.

In 2016, the Government allocated £1.2 billion to build 200,000 Starter Homes, which would be sold to first-time buyers at a 20% discount, but no properties have so far been built under the scheme.

Top 3 takeaways

• Just 165,090 new homes were built in England in 2018, well short of the Government’s target to have 300,000 new properties completed every year

• There was no increase in the number of properties started during the year compared with 2017, despite a raft of government measures to accelerate housebuilding levels

• Building levels fell by 8% during the final quarter compared with the previous three months