Can you reclaim LBTT if a Scottish property was uninhabitable when you bought it?

Introduction

Buyers sometimes ask whether they can recover Land and Buildings Transaction Tax (LBTT) if the property they bought in Scotland was in very poor condition. The usual argument is that the building was not “suitable for use as a dwelling” on the effective date of the transaction, so it should not have been treated as residential property for LBTT purposes.

This is a difficult area. A property can be in serious disrepair and still be classed as residential. Recent case law shows that the legal threshold is high. In particular, in an uninhabitable or not suitable for use case, the condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer purchased a dwelling in Scotland and later considered whether LBTT had been overpaid because the property was allegedly uninhabitable at completion. The reported problems included long-term vacancy, unsafe electrics, lack of gas connection, concerns about water supplied through lead pipework, roof defects, damp, and rotten flooring.

The buyer wanted to know whether those facts were enough to support an LBTT reclaim on the basis that the property was not suitable for use as a dwelling.

Nick’s Explanation

Nick’s core view was cautious. He explained that a claim based only on poor condition is unlikely to succeed if the building still has the character of a dwelling.

In anonymised form, his reasoning was:

“Revenue Scotland is unlikely to accept a claim on the basis that a property was not suitable for use as a dwelling purely due to its condition. If a property is intended to be a dwelling and retains the characteristics of a dwelling, it is likely to be treated as residential even if repairs or renovation are needed.”

He also noted that the particular facts needed careful review, because although the property appeared to be in significant disrepair, it was not obvious from the material reviewed that the legal threshold had been crossed.

Nick also highlighted an important procedural point. A buyer may be able to amend an LBTT self-assessment within the statutory amendment window, but that does not mean the amended position will survive an enquiry. If Revenue Scotland opens an enquiry and disagrees, it may issue a closure notice and seek the tax back with interest, and potentially penalties if it considers the amendment careless.

The Law

LBTT is governed by the Land and Buildings Transaction Tax (Scotland) Act 2013. Whether property is residential matters because residential and non-residential transactions are taxed differently.

The key issue in these cases is whether, at the effective date of the transaction, the property was “suitable for use as a dwelling”. If it was, it is generally treated as residential property. If it was not, different LBTT treatment may follow.

Scottish decisions have considered this wording by reference to the physical condition and character of the building. The authorities show that the test is not simply whether the buyer could comfortably move in on day one. A property may need extensive repair and still remain a dwelling for tax purposes.

The modern approach is heavily influenced by the reasoning in the SDLT authorities, including Mudan v HMRC and the later Court of Appeal decision in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Those cases emphasise that the threshold for showing a building is not suitable for use as a dwelling is relatively high. The focus is not merely on disrepair, inconvenience, or the need for major works. The question is whether the defects are so serious that the building has ceased, in substance, to be suitable for residential use.

In Scotland, a particularly relevant decision is Ball and Torokoff v Revenue Scotland [2024] FTSTC 6. There, despite substantial defects and extensive works, the tribunal still found the property to be residential.

Analysis

The practical analysis usually works like this.

First, ask what the building objectively was at the effective date. Was it still recognisably a house or flat with the basic characteristics of a dwelling? If yes, that points strongly towards residential treatment.

Second, identify the defects and ask whether they were repair issues or whether they went further and made occupation fundamentally impossible. Unsafe electrics, damp, rotten flooring, defective roof elements, and outdated services are all serious matters. But the cases show that serious disrepair does not automatically mean the property was not suitable for use as a dwelling.

Third, consider whether the defects created active or imminent danger, or whether the building had lost essential residential functionality altogether. Examples that may help a taxpayer include imminent collapse, absence of a main roof, inability to access basic sanitation, or a building stripped back so far that it is effectively no longer a dwelling in substance.

Fourth, look at the wider evidence. Relevant material may include survey reports, electrical certificates, structural engineer evidence, photographs, local authority records, insurance evidence, and proof that occupation was prevented by health and safety concerns rather than personal choice.

Applying that approach to a case involving long-term vacancy, unsafe electrics, no gas connection, water concerns, roof problems, damp and rot, the buyer may feel the building was plainly uninhabitable. But the legal question is narrower and stricter. If the property still had the basic form and features of a dwelling and the defects were capable of repair, Revenue Scotland is likely to argue that it remained residential.

That is broadly consistent with Ball and Torokoff v Revenue Scotland [2024] FTSTC 6, where substantial problems were not enough. It is also consistent with the higher threshold now reinforced by Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

There is also a procedural risk. Even if a buyer files an amendment within time, Revenue Scotland can enquire into it. If the claim fails, the tax may be reinstated with interest. Depending on the facts and how the return was amended, there may also be an argument about carelessness.

Outcome

The practical takeaway is that a poor-condition property in Scotland will not usually qualify for LBTT reclassification merely because it needed major repairs. A successful argument generally requires more than disrepair, inconvenience, or temporary uninhabitability.

Where the building still retained the character and essential attributes of a dwelling, a reclaim is likely to be difficult. Following Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 and the higher threshold confirmed in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, only more extreme facts are likely to succeed.

Practical Steps

If you are assessing your own position, the sensible next steps are:

• Check the effective date of the transaction and whether the amendment window under the LBTT legislation is still open.
• Gather contemporaneous evidence from the date of purchase, including surveys, photographs, invoices, contractor reports, electrical and plumbing reports, and any local authority records.
• Identify whether the defects were merely serious repairs or whether they created active danger or removed the building’s essential residential character.
• Compare the facts carefully with Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 and the reasoning in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
• Consider the downside risk before filing any amendment, including enquiry risk, interest, and potential penalties.
• Make sure any submission is factually precise and supported by evidence from the time of purchase, not just later renovation evidence.

Conclusion

A Scottish property does not stop being residential for LBTT purposes just because it was in bad condition when bought. The current case law sets a demanding threshold. Unless the defects were so serious that the building had effectively ceased to be suitable for residential use, a reclaim is unlikely to succeed.

Legal References Used

• Land and Buildings Transaction Tax (Scotland) Act 2013
• Ball and Torokoff v Revenue Scotland [2024] FTSTC 6
• Mudan v HMRC [2024] UKUT 307 (TCC)
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• Bewley (as referred to in the tribunal discussion of extreme structural failure cases)

This page was last updated on 22 March 2026.

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