Do you pay commercial SDLT on a run-down house, or is it still residential?

Introduction

Buyers often ask whether a house in very poor condition can be treated as non-residential for Stamp Duty Land Tax (SDLT). This usually comes up where the property is empty, needs major works, or has serious defects such as no heating, damp, rotten floors or outdated electrics.

The difficulty is that a building can be in bad condition without losing its status as a dwelling for SDLT. That distinction matters because residential and non-residential SDLT rates are different. In some cases buyers also wonder whether the tax could be nil if the property is effectively not fit to live in.

This article explains how the rules work where a buyer is acquiring a house that needs substantial refurbishment, and whether poor condition alone can justify non-residential SDLT treatment.

The Question

A buyer was purchasing a house that was empty at the time of purchase. A survey reported that the property needed complete refurbishment and identified a number of serious defects, including:

• a non-functioning boiler and need for a new heating system
• replacement windows throughout
• rewiring
• replacement of rotten flooring
• rising and penetrating damp requiring remedial works

The buyer was told by the conveyancer that a commercial SDLT figure might apply. The buyer wanted to know whether that made sense, or whether the property should still be treated as residential.

Nick’s Explanation

Nick’s view was cautious. He explained that he is generally uncomfortable with treating a property as non-residential unless there is a very strong argument that it was not habitable at the effective date of the transaction because of numerous serious hazards.

His immediate reaction to the scenario was that it was still a house designed for someone to live in, so it was not obvious why commercial rates would apply. In anonymised form, his point was essentially: if this is a house for occupation as a home, poor condition does not automatically make it commercial property.

That approach is consistent with the modern case law. A property does not become non-residential simply because it is vacant, run-down, or in need of major repair. The legal test is stricter than many buyers assume.

The Law

SDLT is charged under the Finance Act 2003. The key issue here is whether the subject matter of the transaction is “residential property” for the purposes of that Act.

Broadly, residential property includes:

• a building that is used or suitable for use as a dwelling
• land that forms part of the garden or grounds of a dwelling
• interests or rights over land that subsist for the benefit of a dwelling

The central question in poor-condition cases is usually whether the building was “suitable for use as a dwelling” at the effective date of the transaction.

That question has been considered in a line of cases, including Mudan v HMRC and, more recently, Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal confirmed that the threshold for showing a dwelling was not suitable for use as a dwelling is now relatively high.

That means ordinary disrepair, even serious disrepair, will often not be enough. The courts look at the property as a dwelling in the real world, but they do not ask whether it is modern, comfortable, mortgageable, or immediately desirable. The issue is whether it has crossed the line so that it is no longer suitable for use as a dwelling at all.

Analysis

There are several steps to the analysis.

First, ask what the property is by nature. If the building is a house or flat built and arranged for residential occupation, that points strongly toward residential treatment.

Second, ask whether the building was still suitable for use as a dwelling on the effective date of the transaction. This is a factual question. The fact that it is empty does not help much on its own. Many dwellings are vacant between occupiers.

Third, look closely at the defects. In this scenario, the reported issues are serious and expensive:

• no functioning boiler or heating system
• windows needing replacement
• rewiring required
• rotten flooring
• damp problems

Even so, those defects do not automatically mean the property is non-residential for SDLT. A house can require complete refurbishment and still remain a dwelling in law. The courts have repeatedly resisted the idea that extensive repair needs alone are enough.

Fourth, consider whether the defects amount to something more fundamental. Examples that may strengthen a non-residential argument can include extreme structural failure, absence of basic facilities combined with wider hazards, severe contamination, or conditions making occupation realistically impossible rather than merely unsafe or unattractive without repair. But after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition thresholds are now relatively high in uninhabitable or not suitable for use cases.

Fifth, distinguish between “non-residential” and “zero SDLT”. These are not the same thing. If a property is non-residential, non-residential rates apply. Whether the amount payable is nil depends on the consideration and the rate bands in force at the time. A buyer should not assume that proving non-residential status means no SDLT is due.

On the facts given here, a house with major repair issues would still often be treated as residential property unless the evidence clearly shows that it had ceased to be suitable for use as a dwelling altogether. The mere fact that it is empty and unsafe “as is” is not enough by itself.

Outcome

The practical conclusion is that a run-down house will usually still be residential for SDLT, even if it needs extensive works. Commercial or non-residential SDLT treatment should not be assumed just because the property is vacant, dilapidated, or in need of complete refurbishment.

On facts like these, the safer view is often that the property remains residential unless there is unusually strong evidence that it was not suitable for use as a dwelling at the effective date. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, that is a high bar.

Practical Steps

If you are assessing a similar purchase, the sensible steps are:

• obtain and keep the full survey, photographs and any contractor reports showing the condition at completion
• identify the exact effective date of the transaction, because suitability is tested at that date
• separate ordinary disrepair from defects that may genuinely prevent use as a dwelling
• check whether the property still had the basic character of a house or flat intended for occupation as a home
• do not assume that vacancy, lack of heating, damp, rewiring needs or general refurbishment automatically make the property non-residential
• calculate SDLT under the correct regime rather than assuming that non-residential treatment means no tax
• where the position is arguable, review the evidence against the current case law, especially the stricter approach confirmed in 2025

Conclusion

A house in poor condition is not necessarily commercial or non-residential for SDLT. The legal question is whether it was still suitable for use as a dwelling at the effective date of the transaction. That threshold is now relatively high after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. In many refurbishment cases, the property will still be residential despite serious defects.

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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