10th November 2023

Stamp duty on uninhabitable property

Property auctions attract many potential buyers, from seasoned investors and developers looking for renovation projects to those looking to purchase a second home. Yet, no matter the intended use of the property, most buyers are likely to already account for stamp duty tax within their bidding budget as this is a cost that can add a sizeable amount to the purchase price. 

Unbeknownst to many, there are exceptions to this tax law and many homeowners have ended up overpaying on stamp duty when they’ve purchased a derelict property. If you think you may be one of these homeowners, or if you’re hoping to buy a derelict property, keep reading as we discuss the caveats surrounding stamp duty rebates and exemptions.

If you’re already a homeowner buying a second property or a piece of land, then you’ll need to pay a surcharge in the form of stamp duty. How much you’ll pay depends on the value of the property and whether the property is residential or non-residential, however, if your second property is uninhabitable, then you may be exempt from paying the surcharge. Sellers never pay stamp duty, so if you own a derelict property and want to sell it, this surcharge will not affect you.

Do you pay stamp duty on an uninhabitable property?

Whilst the answer to this question is subject to rules and regulations set out by HMRC, in most circumstances, you do not pay stamp duty on uninhabitable property. Any derelict property valued between £40,000 to £500,000 can be exempt from SDLT unless it is a secondary purchase in addition to your main residence, in which case the tax may be payable, even if you are planning to purchase the property and use it as a buy-to-let. Any property over the value of £500,000 will require the Stamp Duty Land Tax (SDLT) to be paid, regardless of whether it is derelict or not. Whereas derelict properties that are bought for less than £40,000 are always exempt from stamp duty as anything under this threshold will not warrant an SDLT or surcharge despite the intended use.

Generally, each case should be treated individually so do not assume that the property you intend to buy will be exempt, in some circumstances you’ll simply just be paying the lower SDLT rates. However, in the case of first-time buyers who are thinking of purchasing a derelict property for renovation, no stamp duty will be payable unless the property value is over £425,000 which is a much clearer guideline when establishing a budget. 

It is worth assessing if you’re likely to be charged SDLT or not, as this will need to be factored into your budget for both bidding and repair costs, as owning a derelict property can create financial headaches as council tax increases the longer the property is left abandoned.

What makes a property uninhabitable?

One of the main factors in deciding if a property will be exempt from SDLT is whether it is deemed suitable for dwelling or not. Uninhabitable properties are not to be confused with properties that just need a little bit of TLC to bring them up to scratch. There are a few things that HMRC have set out which would make a property unlivable, these include: 

• No running water or plumbing defects
• The presence of invasive species such as Japanese Knotweed
• The presence of asbestos
• Significant structural damage
• Rot, damp, or mould growth that would pose health risks
• Non-standard roofs or non-weatherproofed buildings
• Unsafe electrics
• Buildings that do not have a kitchen or bathroom

This means that many homeowners could potentially be entitled to a refund on the stamp duty paid when they purchased the property, so long as the defects are significant and would be deemed by HMRC as making the property ‘uninhabitable’.

Can you claim back stamp duty for uninhabitable property?

Due to miscalculations, many homeowners overpay when it comes to stamp duty. The good news is that you can be eligible to receive a refund from HMRC if you’ve bought a derelict or uninhabitable property. There are some stipulations that must be met in order to qualify for this refund. Namely, if this is your second property, your first primary residence must have been sold within 3 years of the purchase of the second residence. You must also file your claim within 12 months from the date of sale of the previous main residence, or within a year of the filing date on the new property, whichever option is later. The property you wish to claim a refund for will need to meet the HMRC criteria that deem it unsuitable for dwelling, which is outlined above. This will be treated on a case-by-case basis, and your property might need only one of these defects to qualify. 

If you think you may be eligible, you can submit a rebate application yourself or enlist the help of a solicitor or rebate company. There are time limits associated with this, so it’s best to submit your application as soon as possible after the sale is completed.

As mentioned previously, you mustn’t confuse repair works with a complete renovation. You will not be able to claim a stamp duty rebate for repair works, this includes things like fixing the guttering or modernising a property, as these do not make a property uninhabitable.

Additionally, it’s important to remember that most derelict properties are not mortgageable so the thousands you could save on stamp duty tax could make or break your sale if you are planning to buy. 

Buy or sell a derelict property with SDL Property Auctions

Finding or selling an abandoned property has never been easier than with SDL Property Auctions. With legal packs available to download and viewings where it is safe to do so, you’ll know exactly what you’re getting when you purchase a derelict property. This will help you finalise a budget and see whether you’re exempt from stamp duty. Browse through our online Auction Events and Timed Auctions to see what’s on offer for your next project. Alternatively, if you’re looking to sell your derelict property, contact a member of our team to start the process.