Can you get an LBTT refund if a Scottish property was uninhabitable when you bought it?

Introduction

Buyers sometimes discover after completion that a property is in far worse condition than expected. Common problems include unsafe electrics, major roof defects, serious damp, rotten floors, missing services, or long-term vacancy. That often leads to the question: if the building was effectively uninhabitable at the date of purchase, can the buyer amend the LBTT return and reclaim tax?

In Scotland, that argument is difficult. The key issue is whether the property was still a residential dwelling for LBTT purposes at the effective date of the transaction. Recent case law shows that the threshold for saying a building was not suitable for use as a dwelling is high. A property can still count as residential even if it needs extensive repairs.

The Question

A buyer purchased a residential property in Scotland and later found serious defects. The building had reportedly been vacant for many years. There was no gas connection, the electrics were unsafe and had to be disconnected, the water supply raised safety concerns, the roof required urgent replacement, and there was widespread damp and rotten flooring. LBTT had been paid on the purchase, and the buyer wanted to know whether a refund could be claimed on the basis that the property was uninhabitable at completion.

Nick’s Explanation

Nick’s view was that a reclaim would be challenging. In anonymised form, his key point was:

“Revenue Scotland is unlikely to accept a claim on the basis that a property was not suitable for use as a dwelling purely because of its condition. The tribunal’s view has been that if a property is intended to be a dwelling and retains the characteristics of a dwelling, it will usually still be treated as residential for LBTT purposes, even if repairs or renovation are needed.”

He also identified an important procedural point. Under the Land and Buildings Transaction Tax (Scotland) Act 2013, a buyer can usually amend a self-assessment return within 12 months of the effective date of the transaction. So a claim may still be in time even if the buyer only later becomes aware of the argument.

However, Nick also warned that making an amendment is not the same as winning the point. Revenue Scotland can open an enquiry and, if it disagrees, can issue a closure notice requiring the tax to be paid back with interest. Depending on the facts, it may also consider whether any penalty position arises.

The Law

LBTT is charged under the Land and Buildings Transaction Tax (Scotland) Act 2013. Whether residential or non-residential rates apply depends on the nature of the property at the effective date of the transaction.

The central question in these “uninhabitable property” cases is whether the building was still a dwelling, or suitable for use as a dwelling, at that date. In practice, that means looking at the physical state of the property and its essential character.

Scottish decisions have considered similar wording by asking whether the building retained the characteristics of a dwelling despite disrepair. A property does not stop being residential merely because it is run-down, vacant, unsafe in some respects, or in need of major works.

The authorities referred to in Nick’s explanation include:

• 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

Although LBTT is devolved and Scottish legislation is separate from SDLT, the case law on “suitable for use as a dwelling” is highly relevant. In an uninhabitable or not suitable for use case, the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Analysis

The right way to analyse this issue is step by step.

First, identify the property’s character at completion. Was it still recognisably a house or flat with the basic physical features of a dwelling? If yes, that points strongly towards residential treatment.

Second, separate serious disrepair from total loss of dwelling suitability. Unsafe electrics, damp, rotten flooring, plumbing defects, missing heating, and roof problems are all relevant. But recent decisions show that these issues do not automatically mean the building was not suitable for use as a dwelling. The test is stricter than many buyers expect.

Third, ask whether the defects were so fundamental that the building could not realistically function as a dwelling without reconstruction rather than repair. This is where the strongest cases tend to arise: for example, imminent structural collapse, absence of a main roof, or conditions so extreme that the building is closer to a shell than a usable house.

Fourth, consider whether the property had lost its essential residential characteristics. If it still had the layout and identity of a dwelling, that makes a reclaim harder. Long vacancy on its own is not enough.

Fifth, consider the evidence available at the effective date. The best evidence usually includes survey reports, electrician and plumber reports, roof reports, photographs, council records, and evidence showing why occupation was unsafe or impossible immediately after completion.

Applying those points to a case involving unsafe electrics, concerns over water supply, roof failure, damp and rot, there is clearly material supporting an argument that the property was unsafe and not ready for occupation. But the present difficulty is that tribunals have increasingly distinguished between a property that is dangerous or in poor condition and a property that has ceased to be suitable for use as a dwelling in the legal sense.

Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 is especially important in Scotland. The tribunal upheld Revenue Scotland’s position even though the property had significant structural and functional defects. The decision shows that substantial works, delayed occupation, and unsafe elements do not necessarily change residential status if the building still fundamentally remains a dwelling.

The position has become even tougher in light of Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. In practical terms, the courts now set a relatively high threshold before a property will be treated as not suitable for use as a dwelling. That means many buildings that buyers would naturally describe as “uninhabitable” may still be treated as dwellings for transaction tax purposes.

Outcome

The practical conclusion is that an LBTT refund claim in this type of case is possible in principle, but difficult on the merits. A buyer may still be within the time limit to amend the LBTT return, but success will depend on proving more than serious disrepair.

If the property still retained the basic character of a dwelling, Revenue Scotland is likely to argue that residential LBTT treatment was correct. Following Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 and the higher threshold now reinforced by Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, many claims of this kind are unlikely to succeed unless the defects were truly fundamental.

Practical Steps

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

• Check the effective date of the transaction and whether the 12-month amendment window under the Land and Buildings Transaction Tax (Scotland) Act 2013 is still open.
• Gather contemporaneous evidence from the date of purchase, including surveys, contractor reports, photographs, videos, auction particulars, and correspondence.
• Focus on evidence showing immediate danger, inability to occupy, and defects going beyond ordinary renovation.
• Identify whether the property lacked essential residential features or had effectively become a shell.
• Review whether the amount of LBTT at stake justifies the risk and cost of making the claim.
• Consider the possibility of an enquiry by Revenue Scotland and the potential exposure to repayment, interest, and any penalty argument if the amendment is rejected.

Where the facts are borderline, the legal analysis should be done carefully before any amendment is filed.

Conclusion

A Scottish property does not become non-residential for LBTT purposes just because it is in very poor condition. The current legal position sets a high bar. Unless the building had lost the essential nature of a dwelling or suffered defects so fundamental that it could not realistically function as one, a refund claim is likely to face strong resistance from Revenue Scotland.

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

This page was last updated on 22 March 2026.

See all questions and answers categorized in this sitemap. Or use Google site search below.