Can you reclaim LBTT on an uninhabitable property in Scotland?

Introduction

Buyers sometimes discover after completion that a Scottish property has serious defects: unsafe electrics, no usable services, structural problems, damp, rot, or a roof in very poor condition. A common question is whether that means the property was not a “dwelling” for Land and Buildings Transaction Tax (LBTT) purposes, so that too much tax was paid and a refund can be claimed.

This issue matters because the tax difference can be significant, especially where the Additional Dwelling Supplement (ADS) was paid. But the legal test is stricter than many people expect. Recent case law shows that a property does not stop being residential simply because it is in bad condition or needs major renovation.

The Question

A buyer purchased a property in Scotland and later asked whether LBTT could be reclaimed because the property was allegedly uninhabitable at the date of purchase. The reported issues included long-term vacancy, no gas connection, unsafe electrics, water supplied through lead pipework, roof defects, widespread damp, and rotten flooring.

The buyer wanted to know whether those conditions meant the property was not suitable for use as a dwelling when bought, and therefore whether an LBTT refund claim was possible.

Nick’s Explanation

Nick’s core view was that a refund claim would be difficult. In anonymised form, his explanation was:

Revenue Scotland is unlikely to accept a claim simply because a property was in poor condition. If the building was intended to be a dwelling and still retained the characteristics of a dwelling, it is likely to be treated as residential for LBTT purposes, even if repairs or renovation were needed.

He also highlighted an important procedural point: an LBTT return can usually be amended within 12 months of the effective date of the transaction under the Land and Buildings Transaction Tax (Scotland) Act 2013. However, making an amendment does not guarantee success. Revenue Scotland can open an enquiry and, if it disagrees, can issue a closure notice requiring the tax to be repaid with interest and potentially penalties.

Nick relied in particular on Ball and Torokoff v Revenue Scotland [2024] FTSTC 6, where the tribunal rejected an argument that a defective property should be treated as non-residential. His summary was that the tribunal focused on the property’s overall nature and characteristics, not just whether it was immediately fit to occupy.

Although Nick initially noted that Scottish law is devolved and might not necessarily mirror English SDLT law in every respect, the direction of travel in the authorities is now much less favourable to taxpayers arguing unsuitability.

The Law

LBTT is charged under the Land and Buildings Transaction Tax (Scotland) Act 2013. Whether a transaction is taxed as residential or non-residential depends on the statutory classification of the subject matter of the transaction.

For this type of dispute, the key question is whether the property was residential at the effective date of the transaction. In broad terms, a building that is a dwelling, or suitable for use as a dwelling, will normally be treated as residential.

In practice, that creates a recurring argument in damaged-property cases: if a building is in such poor condition that it is not suitable for use as a dwelling on completion, can it fall outside the residential rules?

That argument has been considered in both Scottish and wider UK case law. The modern approach is cautious. Tribunals and courts look at the building’s fundamental character and the seriousness of the defects. A property does not become non-residential merely because it is unsafe in some respects, lacks modern services, or requires substantial repair.

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. That decision reinforces the point that the test is not whether the property was comfortable, mortgageable, or capable of immediate occupation, but whether it had ceased, in substance, to be suitable for use as a dwelling at all.

Analysis

There are several steps in analysing a possible claim.

First, identify the tax that was paid. If the amount in dispute is only standard LBTT on a relatively low-value purchase, the economics of pursuing the claim may be poor. If ADS was paid, the amount at stake is often much larger, so the issue becomes more significant.

Second, focus on the condition of the property at the effective date of the transaction, not what was discovered later unless it proves the earlier condition. The relevant date is completion, not the date when contractors later inspected the building or remedial works began.

Third, ask whether the defects were so fundamental that the property had lost the essential character of a dwelling. This is a much higher threshold than showing that the property was unpleasant, unsafe in part, vacant for years, or in need of expensive works.

Fourth, distinguish between serious disrepair and true unsuitability. The following points often help Revenue Scotland rather than the taxpayer:

• the building still had the layout and appearance of a house or flat;
• it retained core residential features such as rooms, kitchen space, bathroom space, and domestic structure;
• the defects were capable of repair, even if the repairs were extensive or expensive;
• the property was bought as a dwelling and marketed as one.

Fifth, consider the authorities.

In Ball and Torokoff v Revenue Scotland [2024] FTSTC 6, the tribunal upheld Revenue Scotland’s view that a property remained residential despite serious defects and major works being needed. The decision is important because it shows a reluctance to treat a damaged dwelling as non-residential where it still fundamentally remained a house.

Nick also referred to Mudan v HMRC [2024] UKUT 307 (TCC) in explaining the “fundamental characteristics” approach. That line of reasoning has now become even harder for taxpayers after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal has made clear that the threshold for showing unsuitability is relatively high. In other words, the property usually needs defects of a very serious kind before it stops being treated as a dwelling.

Applying that approach to a case involving no gas connection, unsafe electrics, lead pipework, roof problems, damp, and rotten floors:

• No gas connection is not usually decisive. Many dwellings can exist without gas.
• Unsafe electrics are serious, but tribunals often treat defective electrics as a repair issue unless the overall building has effectively ceased to function as a dwelling.
• Lead pipework and unsafe water supply are relevant, but again may be seen as remediable service defects rather than proof that the property was not a dwelling.
• Roof failure can be more persuasive, especially if there was active collapse or exposure making occupation impossible. But the exact extent matters.
• Damp and rotten flooring may support the argument, yet often still fall on the “serious disrepair” side rather than the “not suitable for use as a dwelling” side.
• Long vacancy helps factually, but vacancy alone does not change the legal classification.

So while these facts are not trivial, a claim would still face a difficult legal test. The question is not simply whether a reasonable person would have moved in immediately. It is whether, viewed objectively at completion, the building had ceased to be suitable for use as a dwelling in the statutory sense.

There is also a procedural risk. If the buyer amends the LBTT return within the permitted time and receives a repayment, Revenue Scotland may still enquire into the amendment. If it concludes that the property was residential after all, it can assess the tax, charge interest, and potentially argue that the amendment was careless.

Outcome

The practical conclusion is that an LBTT reclaim on “uninhabitable property” grounds in Scotland is possible in principle, but difficult in practice. A property in poor, unsafe, or heavily dilapidated condition will not automatically qualify.

Following Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 and, more broadly, the higher threshold confirmed in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the buyer would need strong evidence that the property had defects so fundamental that it was not suitable for use as a dwelling at the purchase date.

On facts limited to unsafe services, damp, rot, and significant repairs, Revenue Scotland is likely to argue that the property remained residential.

Practical Steps

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

• Check the filing date and the effective date of the transaction to confirm whether the 12-month amendment window is still open under the Land and Buildings Transaction Tax (Scotland) Act 2013.
• Gather evidence showing the condition at completion: auction particulars, survey reports, electrician and plumber reports, roof reports, photographs, videos, and contractor quotations.
• Separate defects that are merely expensive repairs from defects that arguably made occupation impossible or unsafe as a whole.
• Review whether the building retained the basic characteristics of a dwelling at completion.
• Consider the amount of tax at stake, especially whether ADS was included, before deciding whether a claim is commercially worthwhile.
• Factor in the risk of an enquiry, interest, and possible penalties if Revenue Scotland later rejects the amendment.
• Compare the facts carefully against Ball and Torokoff v Revenue Scotland [2024] FTSTC 6 and the stricter threshold reflected in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Conclusion

A Scottish property does not usually become non-residential for LBTT just because it is vacant, unsafe in parts, or in need of major renovation. The current legal position sets a relatively high bar. Unless the defects were truly fundamental and deprived the building of its essential character as a dwelling at completion, a refund claim 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

This page was last updated on 22 March 2026.

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