Responding to HMRC SDLT Enquiry Letters on Uninhabitable Property
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Can HMRC Claw Back an SDLT Refund for an Uninhabitable Property?
Introduction
Many buyers claimed Stamp Duty Land Tax (SDLT) refunds on the basis that a property was not suitable for use as a dwelling at the date of purchase. That issue has become much more difficult following recent tribunal and appellate decisions. Readers often search for answers after receiving an HMRC letter asking for repayment of a refund, usually with interest, and want to know whether they should pay, challenge the decision, or ask HMRC to wait for further court guidance.
This article explains the position where HMRC has opened an enquiry into an SDLT refund claim relating to a property said to be uninhabitable or in very poor condition.
The Question
A taxpayer received an HMRC letter challenging an earlier SDLT refund claim. The claim had been made on the basis that one of the purchased properties, acquired as part of a linked transaction, was in such poor condition at completion that it was not suitable for use as a dwelling. HMRC is now seeking repayment of the refunded SDLT together with interest.
The taxpayer wants to know what the HMRC letter means, why HMRC is revisiting the claim, and what response should now be considered.
Nick’s Explanation
Nick explained that HMRC has been revisiting some earlier SDLT refund claims involving properties in very poor condition. In anonymised terms, his key point was that a number of claims were made at a time when the case law was more favourable to taxpayers arguing that a severely defective dwelling should be treated as non-residential for SDLT purposes.
He explained that HMRC often operates on a practical “process now, check later” basis. In other words, a refund may be issued first, but HMRC can still open an enquiry within the statutory time limit and later argue that the legal basis for the refund was wrong.
Nick’s summary was that there are usually two broad choices once HMRC challenges the claim:
- pay the SDLT and interest demanded; or
- contest HMRC’s position and, where appropriate, ask for the matter to be stood over pending further appellate guidance.
He also noted that the legal landscape changed significantly after October 2024, and that the threshold for showing that a property was not suitable for use as a dwelling is now much higher than many taxpayers previously assumed.
The Law
SDLT is charged under the Finance Act 2003. The amount payable depends heavily on whether the subject matter of the transaction is residential property, non-residential property, or mixed property.
For these purposes, a key question can be whether the property was “suitable for use as a dwelling” at the effective date of the transaction. That question has been litigated repeatedly.
Where a building is in poor condition, the issue is not simply whether it needs repair, modernisation, renovation, or even substantial works. The legal question is whether, at the date of purchase, it was actually suitable for use as a dwelling.
Earlier authorities gave taxpayers some scope to argue that a severely defective house could fall outside the residential SDLT rules. However, the courts have increasingly narrowed that argument. 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 practical effect is that serious disrepair, damp, mould, outdated condition, lack of decoration, or the need for extensive renovation will not automatically mean the property was unsuitable for use as a dwelling. The defects now generally need to be far more fundamental before the property will fall outside the residential SDLT regime.
HMRC also has statutory powers to enquire into amendment or repayment claims within the permitted enquiry window. If HMRC opens a valid enquiry in time, it may demand repayment if it concludes that the refund was not due.
Analysis
The position can be analysed in stages.
First, identify what the original refund claim was based on. If the claim said that the property was non-residential because it was not suitable for use as a dwelling, the factual condition of the property at completion is central.
Second, separate “poor condition” from true legal unsuitability. Many properties bought for investment or refurbishment have damp, mould, defective kitchens or bathrooms, old wiring, heating problems, leaks, or general neglect. Those matters may justify a lower purchase price and substantial works, but they do not necessarily make the building unsuitable for use as a dwelling in the SDLT sense.
Third, apply the current legal threshold. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold is now relatively high. The courts are looking for defects of a much more fundamental character. A property is not treated as non-residential merely because it is unpleasant, unsafe in some respects, or expensive to repair. The case law now makes it harder to succeed unless the building’s condition is so serious that it truly cannot function as a dwelling at the relevant date.
Fourth, check whether HMRC is still within time to enquire. If the enquiry was opened within the statutory period, HMRC is entitled to investigate and reach a conclusion. If the enquiry window has expired, that may be a separate procedural point in the taxpayer’s favour.
Fifth, consider linked transactions carefully. If multiple properties were acquired together, the SDLT analysis may be affected by the way the transactions were structured and whether one or more properties were said to fall outside the residential rules.
Sixth, assess the evidence. The best evidence usually includes contemporaneous photographs, survey reports, contractor reports, mortgage valuation material, completion statements, insurance issues, utility condition, and any local authority notices or safety reports. Evidence created long after completion is usually less persuasive.
Finally, consider litigation risk realistically. Before the more restrictive authorities, some claims were made and paid in a more favourable legal climate. That does not guarantee they will survive HMRC scrutiny now if a valid enquiry has been opened. A taxpayer may still argue the point, but the strength of the case must be judged against the current authorities, not just the earlier understanding of the law.
On the facts described, a property affected by significant damp and mould may once have been argued to be outside the residential rules. Today, that argument is much harder. Damp and mould can be serious, but after Mudan the court threshold is relatively demanding. The question is not whether the property needed more than basic renovation; it is whether the defects were so fundamental that the building was not suitable for use as a dwelling at all on the effective date.
Outcome
If HMRC has issued a valid enquiry letter, it usually means HMRC believes the original refund should not have been paid and is seeking repayment with interest. The taxpayer generally has a choice between accepting HMRC’s position or disputing it.
However, readers should approach any dispute with caution. In uninhabitable property SDLT cases, the law has become more restrictive, and the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. A claim based only on serious disrepair or the need for extensive renovation may no longer be strong enough.
Practical Steps
If you receive this kind of HMRC letter, the sensible next steps are:
- read the letter carefully and identify the deadline for response;
- check the date the original refund claim or amendment was submitted, to see whether HMRC opened its enquiry in time;
- gather all contemporaneous evidence showing the property’s condition at completion;
- review whether the defects were truly fundamental, rather than merely serious or expensive to repair;
- check whether the purchase involved linked transactions, as that may affect the SDLT analysis;
- calculate the amount HMRC says is due, including interest;
- decide whether there is a realistic basis to challenge HMRC or whether settlement is the more practical course.
Where a taxpayer is considering contesting HMRC’s position, the response should be structured, evidence-based, and tied closely to the current authorities. General assertions that the property was “uninhabitable” are unlikely to carry much weight without strong supporting evidence.
Conclusion
An HMRC letter of this kind usually means HMRC is revisiting an earlier SDLT refund and may want the tax repaid with interest. The key issue is whether the property was genuinely not suitable for use as a dwelling at the purchase date. That argument is now much harder to win than it once was. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold in uninhabitable property cases is relatively high, so a careful review of the facts, timing and evidence is essential before deciding how to respond.
Legal References Used
- Finance Act 2003
- 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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