Can you reclaim LBTT in Scotland if a property was not habitable when you bought it?

Introduction

Buyers in Scotland sometimes ask whether they paid too much Land and Buildings Transaction Tax (LBTT) when they bought a run-down house or flat. The question usually arises where the property was in very poor condition at completion and may not have been safe or suitable for normal residential occupation.

This issue matters because LBTT treatment depends in part on whether the property was residential at the effective date of the transaction. If a building was genuinely not suitable for use as a dwelling at that point, there may be an argument that it should not have been taxed as residential property. That can affect both the rate of tax and, in some cases, whether an additional dwelling supplement was charged.

However, the legal threshold for saying a property was not suitable for use as a dwelling is now relatively high, especially following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. A poor-condition property is not automatically non-residential.

The Question

A buyer purchased a dwelling in Scotland in a personal capacity for a relatively modest price and paid LBTT on the basis that it was residential property. After completion, the buyer reviewed the condition of the property and wondered whether too much tax had been paid.

The reported issues included long-term neglect, sanitation concerns, pest problems, defective or ineffective heating, substantial electrical work, and roof repairs. The buyer wanted to know whether those problems meant the property was not habitable at the date of purchase and therefore should have been treated as non-residential for LBTT purposes.

Nick’s Explanation

Nick’s core point was that a refund argument may exist where the condition of the property at the date of purchase was so serious that it was not suitable for use as a dwelling. In anonymised form, his view was:

“If a property had hazards and was potentially dangerous to occupy at the time of purchase, there may be an argument that it should not be treated as residential for land tax purposes.”

He also noted that Scotland has its own land tax system, so LBTT must be considered under Scottish legislation and Revenue Scotland practice, rather than simply assuming the SDLT rules apply directly. Even so, tribunal and court decisions on the meaning of residential property can still be highly relevant when interpreting similar concepts.

That said, the position now needs to be approached with caution. Earlier cases gave taxpayers some room to argue that severe disrepair could make a property non-residential. But the courts have since taken a stricter view. The question is no longer whether the property needed major works or was unpleasant to live in. The question is whether, at the effective date of the transaction, it was truly not suitable for use as a dwelling.

The Law

LBTT is charged under the Land and Buildings Transaction Tax (Scotland) Act 2013. The legislation distinguishes between residential and non-residential property. In broad terms, residential property includes a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

Where a property is residential, residential LBTT rates apply. Where it is non-residential, non-residential rates apply. In some cases, if the buyer already owns another dwelling, the Additional Dwelling Supplement may also be relevant under the Scottish rules.

The difficult question in poor-condition cases is the meaning of “suitable for use as a dwelling” at the effective date of the transaction. That is a fact-sensitive test.

Historically, taxpayers often relied on decisions such as P N Bewley Ltd v HMRC, where the condition of the building was central to whether it counted as residential property. But more recent authority has narrowed the practical scope of these arguments. In particular, Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 confirms that the threshold is relatively high. A property does not cease to be residential merely because it is dilapidated, lacks modern facilities, or requires extensive repair.

The modern approach looks at whether the building retained the basic character of a dwelling and whether the defects were so serious that it was not suitable for residential use at all on the relevant date.

Analysis

To assess whether an LBTT reclaim is realistic, the facts should be tested in stages.

First, identify the correct tax regime. For property in Scotland, the relevant tax is LBTT, not SDLT. Although English SDLT case law may still be persuasive on similar wording, the claim must be framed under Scottish legislation and procedure.

Second, focus on the condition of the property on the effective date of the transaction. Evidence of works done later is relevant only if it helps prove the pre-existing condition. The legal test is not based on what the buyer later spent, but on the state of the property when the transaction completed.

Third, distinguish between serious disrepair and true unsuitability for use as a dwelling. The following points often matter:

• whether the property had functioning water, drainage, electricity and basic sanitation;
• whether it could be occupied safely, even if uncomfortably;
• whether the defects created immediate danger rather than inconvenience or poor condition;
• whether the building remained recognisably a dwelling rather than a shell or construction site;
• whether any public authority action, survey report, or professional evidence showed that occupation was unsafe or impossible.

Fourth, consider the reported defects carefully:

• Sanitation and pest issues can be important, especially if they show a serious health hazard, but they do not automatically make a property non-residential.
• Defective heating may support the argument, but many dwellings remain residential even without effective heating.
• Electrical defects can be significant if the installation was dangerous and the property could not safely be occupied.
• Roof defects matter most where they caused major water ingress, structural danger, or conditions making occupation unrealistic.

Fifth, apply the higher threshold confirmed by Mudan. A neglected or abandoned house may still be residential if it remained basically capable of being lived in, even after repair or cleaning. The courts are unlikely to accept a non-residential argument merely because the property was unattractive, outdated, or in need of substantial renovation.

Sixth, think about the quality of the evidence. A strong case would usually need contemporaneous material such as:

• the home report or survey;
• photographs from the purchase date;
• electrician, roofer, heating engineer, or environmental health reports;
• invoices and quotations that describe pre-completion defects;
• any records showing infestation, dangerous wiring, or statutory notices.

If the evidence shows only that the property had been empty for years and needed extensive refurbishment, that may not be enough. If it shows genuine danger to health or safety and a practical inability to occupy the dwelling as a home at completion, the argument becomes stronger.

Outcome

A buyer in this situation may have an arguable LBTT reclaim, but only if the property’s condition at the date of purchase crossed the relatively high legal threshold for being not suitable for use as a dwelling.

On the facts described, there are indicators that may support further investigation, especially the sanitation concerns, alleged health hazards, and potentially dangerous electrical condition. But those points would need strong contemporaneous evidence. The mere fact that the property had been abandoned, required major repairs, or was bought cheaply would not by itself justify reclassifying it as non-residential.

Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, uninhabitable or not suitable for use arguments face a stricter test than many buyers expect.

Practical Steps

If you want to assess whether an LBTT reclaim is viable, the sensible next steps are:

1. Obtain the purchase file, including the LBTT return and any calculation of tax paid.
2. Collect contemporaneous evidence showing the property’s condition at the effective date of the transaction.
3. Review the home report and any specialist contractor reports for statements about danger, lack of basic services, or inability to occupy.
4. Separate essential safety defects from ordinary renovation works.
5. Check the statutory time limits and amendment or repayment procedures under the Scottish LBTT regime.
6. Analyse the facts against the current case law, especially the stricter approach now taken to habitability disputes.

If the evidence is borderline, the case should be assessed carefully before any reclaim is made. These claims turn heavily on detail, and broad descriptions such as “derelict”, “abandoned” or “uninhabitable” are not enough without supporting proof.

Conclusion

It is possible in principle to argue that a Scottish property should not have been taxed as residential for LBTT purposes if, at completion, it was not suitable for use as a dwelling. But the threshold is high. A property needing extensive repair is not automatically non-residential, and Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 makes that clear. The key question is whether the building was truly unsuitable for residential occupation at the effective date of the transaction, supported by strong contemporaneous evidence.

Legal References Used

• Land and Buildings Transaction Tax (Scotland) Act 2013
• P N Bewley Ltd v HMRC
• 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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