The tax chamber of the First-Tier Tribunal grappled with this question as to whether defective cladding on a block of flats renders a flat “unsuitable for use as a dwelling” for SDLT purposes.


The statutory position

Section 42 of the Finance Act 2003 provides for a charge to tax (SDLT) on land transactions.  Section 55 provides the rates of tax when the rules for higher rate transactions do not apply.  Lower rates of tax apply if the land is not “residential property”.

Residential property is defined to mean a building that’s used or suitable for use as a dwelling; or is in the process of being constructed or adapted for such use (Section 116).

A building counts as a “dwelling” if:

  1. It is used or suitable for use as a single dwelling; or
  2. It is in the process of being constructed or adapted for such use.

The issues in Fish Homes Limited v HMRC [2020] UKFTT 180 (TC) were:

  • If the flat was a dwelling, its purchase would be a “residential transaction” and the residential transaction rates of tax in Section 55 would apply; and
  • If the flat was not a dwelling, Schedule 4A would not apply and the non-residential rates of tax in Section 55 would apply.


Relevant background

In August 2017, Fish Homes completed its purchase of a flat in a block in Greenwich.  Unfortunately, there were cladding issues at the block.

Claims were made against NHBC (and later the developer of the block) for the cost of remedial work.  The remedial works commenced in March 2019 and completed in or around June/July 2019.


Decision of the Tribunal

It was noted by the Tribunal that tests on the cladding were conducted in October 2017, which confirmed that it was ACM and that the material was “not in line with the requirements for a material of limited combustibility” and did not have fire retardant properties.

The Tribunal considered an array of correspondence involving NHBC and concluded that:

“…It is likely that NHBC accepted that the cladding on the block in which the flat was located did not comply with the building regulations enforced at the time it was completed.  It seems likely therefore that by raising the matters involving the cladding the block did not comply with the building regulations applicable at the time it was built or those enforced when Fish Homes bought the flat”.

Fish Homes argued that a distinction should be made between something being capable for use as a dwelling, as something being suitable for such use.

The Tribunal considered the decision of the (differently constituted) First-Tier Tribunal in PN Bewley Limited v HMRC.

The Tribunal agreed with Fish Homes that there is a difference between a building being capable for use as a dwelling and one which is suitable for such use.  However, the difference is a slim one.

“…”Capable” imports that some adjustment could be made which would render an otherwise unsuitable building unfit for use as a dwelling whereas “suitable” indicates in evaluation of its present condition or facilities”.

In the view of the Tribunal, to render a property “unsuitable” defects needed to be sufficiently serious so that a reasonable person would decide against occupation.

A failure to comply with building regulations did not, of itself, mean a property was unsuitable.

Neither the Local Authority nor the Fire Authority had prohibited occupation.

Accordingly, the Tribunal found the flat was a dwelling at the effective date, so that the ordinary rate of duty applicable to residential transactions applied.