Upper Tribunal Tax and Chancery Chamber

UT/2023/000063 - [2024] UKUT 00307 (TCC)

Fecha: 28-Jun-2024

the ftt’s decision

the ftt’s decision

13.

References below in the form FTT[x] are to paragraphs of the Decision.

14.

In a commendably succinct decision, the FTT set out the evidence which it considered; made findings of fact; summarised the submissions of the parties; discussed the main authorities, and set out reasons for its conclusion that the Property was suitable for use as a dwelling (Footnote: ¹).

15.

The evidence included detailed evidence from Mr Mudan, together with three reports relating to the condition of the Property adduced by Mr and Mrs Mudan and which were admitted by the FTT. Mr Mudan had first visited the Property in August 2018, when people were living there, and again in Spring 2019, when the Property “was in a relatively bad state” but people were still living there. The purchase of the Property was completed on 5 August 2019.

16.

The FTT’s description of Mr Mudan’s evidence included the following, at FTT[27]-[30]:

27.

Mr Mudan agreed that the Property was still residential in nature. It had been someone’s house for many years and it was not falling down. Nevertheless, he did not consider that it was safe to live in with a young family. This was so even though there was no structural damage to the Property and no structural work was required except to replace the missing roof over the boiler room. Mr Mudan was sure that there was a danger to life because of the state of the electrics...

…

29.

Mr Mudan agreed that he had purchased the Property with the benefit of a mortgage and the mortgagee had clearly been happy to lend on the security of the Property.

30.

In answer to a question from the Tribunal, Mr Mudan explained that the works that had been done to make the Property safe (as opposed to a pleasant place to live) was as follows:

(1)

the electrical works of rewiring, with new switches, sockets and fuse panels;

(2)

a new boiler, water pumps and pipes (works to gas as well as water - where the boiler had been pulled away from the wall there were damaged pipes that could be leaking and they had to be made safe) in the boiler house;

(3)

a new roof over the boiler house designed to stop rainwater entering;

(4)

broken windows were repaired and the Property made secure;

(5)

The unbearable smell in the kitchen was cured by cleaning it out completely, removing all the units (and with them the rotting food etc). This had got rid of the smell and the vermin with it;

(6)

The basement flooded to about six inches deep. There were some leaking pipes behind the walls and the plumbers had had to redirect the water supply and tank the cellar to some extent as water still came through when it rained. As a result of rainwater entering, Mr Hanspal had suggested tanking the basement.

(7)

Lots of rubbish had had to be cleared from the house and the garden. Several skips had been needed to accomplish.

17.

The FTT made the following findings of fact, at FTT[32]-[33]:

32.

… I find as facts that, as at the effective date, the Property:

(a)

had been used relatively recently as a dwelling; and

(b)

was structurally sound; but

(c)

was not in a state such that a reasonable buyer might be expected to move in straight away. I find that, before a reasonable buyer would consider the Property was “ready to move into”, the following works would be needed:

(i)

the Property would need complete rewiring;

(ii)

a new boiler, pumps and gas and water pipes would be required in the boiler house, so that the water system operated safely and the boiler house roof would need fixing;

(iii)

the leaking pipes in the cellar would need to be repaired or replaced;

(iv)

the kitchen units and appliances would need to be stripped back to the bare walls and replaced;

(v)

broken windows and doors (including locks) would need repairing and the Property made secure;

(vi)

a lot of rubbish (inside and outside the house) would need clearing away.

33.

…I do not consider that works to bathrooms would be required before an occupier would move in, nor do I consider that a reasonable occupier would require the cellar to be tanked before moving in…

18.

After summarising the submissions of the parties, the FTT considered various relevant authorities, which we discuss below. These were:

(1)

Fiander and Brower v HMRC [2020] UKFTT 190 (TC) (“Fiander FTT”).

(2)

Fiander and Brower v HMRC [2021] UKUT 156 (TCC) (“Fiander UT”).

(3)

PN Bewley Ltd v HMRC [2019] UKFTT 65 (TC) (“Bewley”).

(4)

Fish Homes Ltd v HMRC [2020] UKFTT 180 (TC) (“Fish Homes”).

19.

The FTT then set out its reasons for concluding that the Property was suitable for use as a dwelling at FTT[50]-[54]:

50.

It is clear that there is a degree of disrepair that will result in a property, which may otherwise resemble and meet the requirements for (and indeed have been previously used as) a dwelling, not being suitable for use as a dwelling. However, a significant degree of disrepair is required. Although suitability is tested on the effective date, “suitable for use” on the effective date does not mean suitable for immediate use and occupation (“ready to move in”) on that date. There is, as it were, a margin of appreciation, a degree to which a property can fall short of being ready for an occupier to move in without the property ceasing to be suitable for occupation as a dwelling. Disrepair which can be cured (things which are not fundamental but which need fixing, as the FTT put it in Fiander) is not enough, nor is it necessarily enough that there is a feature of the property which makes it potentially more dangerous to inhabit than one would normally expect (unsuitable and potentially dangerous cladding is the example from Fish Homes).

51.

It must be unrealistic to expect someone to live in the property in its current state (perhaps because it is too dangerous or unpleasant to inhabit) and it must require more than repair/renovation (the words of the Upper Tribunal in Fiander) or “fixing” non-fundamental issues to make it suitable. If, as was the case in Bewley, the property could not realistically be occupied in its current state and (albeit for different reasons) the relevant defects could not be cured, so that demolition was the only way forward, the property will clearly not be suitable for use as a dwelling. Other examples of sufficiently fundamental problems might include a high risk of structural collapse or some other lack of physical integrity, such as the building being radioactive. Examples of failings which are not sufficient include the need for a new boiler, the heating system not working, damp problems or the flooring needing replacing.

52.

I consider that there is considerable force in Mr Vallis’ [counsel for HMRC] point that the statute treats as a dwelling a building in the course of being constructed or adapted for use as a dwelling. It does the same, where the effective date of a transaction is the date of substantial performance, for a purchase of a building (or part) which is to be constructed or adapted for use as a dwelling under the terms of the contract under which it is acquired and where the construction or adaptation has not begun by that time (so-called “off plan” purchases); paragraph 18(5) of Schedule 4ZA. The statute counts as a dwelling any building which (as at the effective date) is used or suitable for use as a dwelling, is in the process of being constructed or adapted for such use or is to be constructed/adapted for such use by the seller. Put the other way round, the only buildings which do not count as dwellings are those which do not exist or exist but are not used and not “suitable” for use as dwellings, where the construction/adaptation works required to construct or adapt them to be suitable as dwellings have not begun and where those works (if they have not started) are not the seller’s responsibility. If part-constructed/adapted buildings and a developer’s plans for a building can count as a dwelling, it would seem surprising for a property which had recently been used as a dwelling and was fundamentally capable of being so used again (there being no lack of structural or other physical integrity preventing this) not to count as a dwelling because there are obstacles to immediate occupation, even though those obstacles do not go to the physical integrity of the building and are capable of being fixed without too much difficulty.

53.

Pulling all of this together, I consider that a building which was recently used as a dwelling, has not in the interim been adapted for another use and is capable of being so used again (a building, such as the one in Bewley, the defects in which cannot be put right at all, will not be capable of being so used) will count as a dwelling, even though it is not ready for immediate occupation, unless the reason/s why it is not ready for immediate occupation are so fundamental (being radioactive or at high risk of collapsing, for example) that the work required to put these problems right goes beyond anything that might ordinarily be described as repair, renovation or “fixing things” (examples of this sort of work being installing a new boiler or heating system, damp problems or floors needing replacing).

54.

I do not consider that the works I have found a reasonable buyer would require to be carried out before they would consider that the Property was suitable for occupation (“ready to move into”) given its state on 5 August 2019 …come anywhere near that threshold. I accept that the state of the gas and electrics and aspects of the water supply (including the need for a new boiler house roof) made the Property too dangerous for a reasonable person to occupy immediately, but the works required to put those problems right were not fundamental and were much closer to the new boiler/heating system/curing damp/new flooring end of the spectrum than the radioactive house/dangerous structure/potentially collapsing walls end. All the other problems and curative work (stripping and refitting the kitchen, sorting out some damp, clearing rubbish and mending doors and windows) were less significant than those items.