Could a tax tribunal ruling mean BTL investors avoid 3% stamp duty surcharge?

Buy-to-let investors could soon fill the HMRC with stamp duty surcharge refund requests. This is following on from a potential precedent set at a recent tax tribunal that saw a couple acquire a neglected building and were able to refute the additional 3% stamp duty charge on purchases of second homes.

It was revealed at the tribunal, held in Bristol, that potentially, buy to let investors could avoid paying the 3% stamp duty surcharge. This instance could cause many more landlords who have already paid the surcharge, to demand a refund from HMRC and suggests that many property purchases could fall short of the additional 3% surcharge and just consist of the standard rate stamp duty.

Paul and Nikki Bewley acquired their uninhabitable bungalow in Western-super-Mare and made the decision to bulldoze the original build in order to make way for a new property, thinking they would not accountable for the 3% charge for Taking on the additional property.

HMRC argued this view, believing that the 3% charge was applicable, as the property was capable of being used as a dwelling sometime in the future.

However, a recent tax tribunal ruled against the HMRC and in favour of Paul and Nikki Bewley, stating that they are only able to charge the 3% if the home is in an acceptable living condition right away.

HMRC has yet to decide on an appeal, stating: “We’re considering the judgment carefully.”

But, this ruling suggests that many buy-to-let landlords could be exempt from the 3% surcharge, when buying a property that is uninhabitable at the time they purchased it.

Commercial Trust Limited, a specialist buy-to-let broker, considers that this ruling could represent an opportunity for past claims from buy-to-let investors who have paid the additional 3% charge on properties that were uninhabitable at the time of purchase.

Stay put – when is it safe to leave?

Stay put policies have really come under scrutiny in recent months. In a high-rise block the concept is sound – but only if all the many aspects that add up to successful compartmentalisation are in place. This means sub-dividing buildings into a number of compartments to restrict the spread of fire but it relies on effective fire doors, fire stopping applied correctly to windows and service access points and so on.

Both the public and the property industry are now painfully aware that when a fire broke out at Grenfell Tower on 14 June 2017, proper attention had not been paid to the passive fire protection that was needed to make compartmentalisation work. Stay put utterly failed that night and the result was horrendous loss of life. Once the policy was finally abandoned and residents advised to leave the building, it was too late to safely evacuate.

Grenfell has forced government to take a fresh look at Approved Document B – which is the part of the building regulations that deals with fire safety. Stakeholders are being consulted and changes made. However, so far, those changes haven’t included any advice around escape plans, ie what should residents do if stay put has to be abandoned?

The RIBA drew the government’s attention to this issue earlier this week, saying that too much emphasis is still being placed on building design and construction to resist the spread of fire, while aspects such as warning residents of a fire, escape plans and access for the fire service have not been prioritised.

The architects’ body wants guidance on escape plans to be included in Approved Document B, as well as a requirement for:

  • at least two staircases in new multiple occupancy residential buildings;
  • the introduction of centrally addressable fire alarms, which allow fire crews to quickly find which alarm has been activated; and
  • sprinklers to be fitted in all new and converted residential buildings and  retrofitted in existing residential buildings above 18 metres.

Jane Duncan, chair of RIBA’s expert advisory group on fire safety, said: “We simply cannot allow buildings to continue to be built to regulations and guidance that everyone, including the government, acknowledges are deeply flawed.”

We agree. While the government is still shaping its response to Grenfell, let’s hope it does too.

Know your onions – and your tomatoes!

Could you tell the difference between cannabis and tomatoes? One Scottish letting agent was caught out recently when she found a tenant growing what she thought was cannabis in the bedroom of a rented property in West Lothian.

In fact, the letting agent was left red-faced when the plants turned out to be tomatoes! However, the agent was right to be vigilant and right to report her suspicions when she got back to the office. Cannabis farms are on the increase and growers often choose rented properties to grow their plants.  

The bad news for landlords is that the law holds you responsible if you allow your rented property to be used for the production, cultivation, possession or supply of cannabis. Weed is a Class B drug and the penalties under section 8 of the Misuse of Drugs Act, 1971 are severe. You could end up with a criminal record or a hefty fine.

So what are the warning signs to look out for? Here are a few pointers:

  • If you know what cannabis smells like, this might give you a clue even when the plants are out of sight. It is one of the major tell-tale signs of being near a drug farm.
  • Equipment such as lighting racks and ventilation fans being taken into the property may be a sign of tenants being up to no good – the neighbours might also have spotted such activity.
  • Have the windows been blacked out or permanently covered? This may be a sign that lighting conditions are being controlled for the cultivation of a cannabis crop.
  • Is there evidence of strong lights being left on day and night?
  • Constantly misted windows and signs of condensation might indicate the higher than normal temperatures being maintained within the building.
  • Growers are likely to be using ventilation and extraction fans 24/7 – you would be likely to hear the sound of these as soon as you approach the property.
  • annabis farms require a lot of power and energy – unusual cabling running out of the property could be used to tap into illicit supplies of electricity from street lighting.

If you or your property agent does become suspicious, call the police immediately. Don’t tackle any of the occupants yourself as they could respond violently.

The moral of this story is that not only should landlords and property agents be vigilant and be aware of the tell-tale signs of illegal activity in rented properties  – but they also need a rudimentary knowledge of horticulture!

Don’t forget the smoke alarm!

Landlords and letting agents are the target of a new smoke alarm awareness campaign launched this week. West Yorkshire Fire and Rescue Service is promoting ‘Let it, don’t forget it’ in a new video urging private sector landlords and letting agents to make sure smoke and carbon monoxide alarms are fitted in their rented properties. The fire safety video, which you can watch on YouTube here, highlights the changes in the law that were introduced in 2015.

The Smoke and Carbon Monoxide Alarm Regulations 2015, oblige landlords to take responsibility for fire safety in their properties. At least one smoke alarm must be installed on every storey and carbon monoxide alarms must be fitted in any room containing a solid fuel burning fire or stove. Either hard wired or battery powered alarms can be installed and your local fire service can offer advice if needed. But the landlord’s obligations don’t end  there. Either they or their letting agent must make sure all alarms are working properly at the start of each new tenancy.

Failure to comply could mean a fine of up to £5000, so we suggest landlords make provision for tenants to sign the inventory when they move in, to record that the required alarms have been tested by the landlord and that they are satisfied they are in working order.

Renters also need to take responsibility for their own fire safety and test the alarms in their home regularly. We recommend doing this monthly. It only takes a few minutes and it could save a life. If an alarm isn’t working inform the landlord straight away.

In July 2018 the letting agent responsible for a property in Huddersfield where two little boys died in a house fire was jailed for 12 months for failing to fit smoke alarms.

West Yorkshire Fire and Rescue Service were called to the blaze.  Dave Walton, deputy chief fire officer said: “On the third year anniversary of the boys’ loss we want to remind landlords and letting agencies of their responsibilities. Do not take the risk with people’s lives and do not think that a fire ‘will never happen’ – it could… If you are a private sector landlord or letting agent then take your responsibilities seriously and take heed of this warning.”

To read the government regulations on fire safety in rented (but not long leasehold) homes, click here

High Court: Right to Rent does breach human rights

The High Court has ruled today that the government’s controversial Right to Rent scheme breaches human rights law.

Right to Rent was introduced by Theresa May when she was Home Secretary, as a key strand of the Government’s increasingly discredited ‘hostile environment’ for illegal immigrants. No one wants to find they are renting their property to someone who is living in the UK illegally. But the problem with the Right to Rent scheme is that it puts landlords, not the Home Office, in the driving seat. Landlords are personally responsible for checking the immigration status of tenants themselves, which is regarded as completely inappropriate by landlord organisations because they could face prosecution if they get it wrong and are found to be renting to someone who has no right to UK residency.

Last year the Joint Council for the Welfare of Immigrants (JCWI) brought a case against the government, backed by The Residential Landlords Association (RLA) and Liberty, claiming the policy is incompatible with human rights law because it drives discrimination against non-UK nationals who might be in the country legitimately and British ethnic minorities.

Today, the JCWI got the verdict it was hoping for. The High Court has ruled that the scheme does breach the European Convention on Human Rights and that discrimination by landlords is taking place “because of the Scheme.” The judge, Mr Justice Martin Spencer said that the safeguards used by the Government to avoid discrimination, namely online guidance, telephone advice and codes of conduct and practice, have proved ineffective. He concluded that “the Government’s own evaluation failed to consider discrimination on grounds of nationality at all, only on grounds of ethnicity.”

The RLA is now calling on the government to accept the decision, scrap the Right to Rent, and come up with a better way to sensibly manage migration, “without having to rely on untrained landlords to do the job of the Home Office.”