Does planning permission for a children’s home mean non-residential SDLT rates apply?

Introduction

A common SDLT question is whether a property stops being “residential” because the buyer intends to use it for something other than ordinary living accommodation. This often arises where a house or bungalow is being bought for use as a children’s home, care setting, or other specialist accommodation.

The short answer is that planning permission on its own does not usually decide the SDLT treatment. The key issue is the legal test in the Finance Act 2003: whether, at the effective date of the transaction, the property is used as or suitable for use as a dwelling. That is the starting point, not the buyer’s future plans.

The Question

A buyer is purchasing a bungalow through a company. The property has historically been used as an ordinary dwelling. Before completion, planning consent has been obtained for use as a children’s home within planning use class C3(b).

The buyer wants to know whether HMRC guidance at SDLTM09530 means the purchase can be taxed at non-residential SDLT rates rather than residential rates. The buyer also wants to know whether the same reasoning could support a refund claim for an earlier purchase.

Nick’s Explanation

Nick’s explanation can be summarised in this way:

First, SDLT classification depends on the property’s status at the effective date, which is normally completion. The relevant question is not simply what planning permission exists, or what the buyer intends to do later, but whether the building is used as or suitable for use as a dwelling at that date.

Secondly, HMRC’s manual at SDLTM09530 may be relevant, but it does not override the statute. A change of planning use to a children’s home does not automatically turn a dwelling into non-residential property for SDLT purposes.

Thirdly, if the property is still physically a normal dwelling at completion and remains suitable for residential occupation, HMRC is likely to treat it as residential. Where the buyer is a company, the higher rates for additional dwellings regime will usually apply to a residential purchase.

Nick’s central point was that a non-residential outcome is more likely only where, by completion, the building’s physical and functional character has genuinely changed so that it is no longer suitable for use as a dwelling in the ordinary sense.

The Law

SDLT is charged on land transactions by Part 4 of the Finance Act 2003. The basic charging provisions include:

• section 42, which charges SDLT on land transactions;

• section 43, which defines a land transaction;

• section 48, which defines a chargeable interest; and

• section 49, which provides that a land transaction is chargeable unless exempt.

The residential or non-residential rate depends on the nature of the property at the effective date of the transaction. For this purpose, the key provision is section 116 Finance Act 2003. Broadly, property is residential if it consists of or includes a building that is used or suitable for use as a dwelling, or land that forms part of the garden or grounds of such a building.

This means the legal test is not controlled by planning law labels. Planning permission can be relevant evidence, but it is not conclusive. A property can have planning consent for a different use and still be residential for SDLT if, in reality, it remains suitable for use as a dwelling at completion.

HMRC’s SDLT Manual, including SDLTM00300 onwards and SDLTM09530, gives guidance on HMRC’s view. However, HMRC guidance does not replace the statutory test in section 116.

Where a company buys residential property, the higher rates for additional dwellings generally apply. In broad terms, that means a company buying a dwelling will usually pay the residential rates with the company surcharge unless a specific exception applies.

Where an argument is made that a property was uninhabitable or not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal confirmed that serious disrepair or a need for works will not easily take a property outside the definition of residential property. The question is whether the building has truly ceased to be suitable for use as a dwelling, and that is a demanding test.

Analysis

The issue can be worked through in stages.

1. What is being bought at completion?

If the buyer completes on a bungalow that still has the physical character of a home, the starting point is that it is a dwelling. A building does not stop being a dwelling merely because the buyer intends to operate it differently after purchase.

2. Does C3(b) planning consent change the SDLT answer by itself?

No. C3(b) is a planning category. SDLT does not classify property by asking only what planning use class applies. The tax question is whether the property is used as or suitable for use as a dwelling at the effective date.

3. Can a children’s home ever fall outside residential SDLT treatment?

Potentially yes, but the facts must support that conclusion. If, before completion, the property has already been physically altered and functionally transformed so that it no longer has the character of a dwelling in the ordinary sense, there may be scope to argue that it is not residential. That will depend on evidence, not intention.

4. What kind of evidence matters?

The most important evidence is the actual state of the property at completion. Relevant points may include whether it still has the normal layout and facilities of a home, whether it could readily be occupied as a dwelling, whether specialist institutional adaptations have already been carried out, and whether its character has genuinely changed.

5. Does HMRC manual SDLTM09530 guarantee non-residential treatment?

No. HMRC manuals are guidance only. They may help explain HMRC’s approach, but they do not create a legal entitlement where the statute does not support it.

6. What about a refund for an earlier purchase?

A repayment claim would only be viable if the earlier property, at the effective date of that earlier transaction, was in fact non-residential under the statutory test. A later change of use, later planning permission, or later business operation would not normally justify revisiting the SDLT treatment of the original purchase.

7. What if the buyer argues the property was not suitable for use as a dwelling?

That argument now faces a relatively high hurdle. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the courts take a stricter view of when a building is truly unsuitable for use as a dwelling. Ordinary disrepair, refurbishment needs, or adaptation plans will often not be enough.

Outcome

In a case where a bungalow is still physically a normal dwelling at completion, the safer view is that residential SDLT rates apply, even if planning permission has already been granted for use as a children’s home under C3(b).

If the buyer is a company, the higher residential rates will usually apply to that residential purchase.

Non-residential rates are more likely to be defensible only where, by completion, the building has already ceased to be suitable for use as a dwelling because its physical and functional character has genuinely changed.

A refund for an earlier purchase would depend on the facts and condition of that earlier property at the time of that earlier completion, not on what happened later.

Practical Steps

If you are assessing a similar SDLT position, the sensible steps are:

• Identify the effective date of the transaction, usually completion.

• Gather evidence of the property’s condition and character on that date, including photographs, survey material, floor plans, planning documents, and any building control or adaptation records.

• Ask whether the property was still suitable for use as a dwelling in ordinary terms at completion.

• Do not assume that planning permission or intended specialist use is enough on its own.

• If considering a reclaim for an earlier purchase, review the facts as they stood at the earlier effective date, not the current position.

• Where there is a genuine argument that the property was not residential, ensure the evidence is strong enough to meet the statutory test and the stricter approach reflected in Mudan.

Conclusion

Planning consent for a children’s home does not automatically produce non-residential SDLT rates. The real question is whether, at completion, the property is still used as or suitable for use as a dwelling under section 116 Finance Act 2003. In most cases where a house or bungalow remains physically a dwelling at that date, residential SDLT treatment will continue to apply.

Legal References Used

• Finance Act 2003, sections 42, 43, 48, 49 and 116

• HMRC SDLT Manual, including SDLTM00300 onwards

• HMRC SDLT Manual SDLTM09530

• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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