It is a major bone of contention for our developer clients that if they buy a house to demolish and redevelop they have to pay the 3% surcharge for buying a residential property. This is an obstacle in the way of providing new homes and a significant cost that has to be recouped from the deal either by reducing the purchase price of the house or increasing the sale price of the new homes.
The only get out for developers comes from arguing that the house is not "suitable for use as a dwelling" at the time of purchase. According to HMRC a bungalow which was missing some of the floor boards, radiators and pipework, which had holes in the walls and ceilings and which was contaminated with asbestos was "suitable".
In the world according to HMRC it would have been possible to renovate the building but the same could be said of any hovel no matter how derelict so this set the bar at such a low level it may as well have been underground. Thankfully the court has decided that the test looks at the property at the date of the transaction rather than the position in potentia at some undefined point in the future and it requires something more that just "can Bear Grylls survive in it" for it to be "suitable".
It would certainly help deliver on the demand for new homes if the anomaly of paying 3% extra on a property that will immediately be demolished were abandoned. Something akin to the concession on buying a new main residence before selling an existing one could work. If a developer can prove demolition within say six months then SDLT could be reclaimed. But that would require a decision to surrender income from this most efficient of taxes.