Can a run-down house count as non-residential for SDLT because it was uninhabitable?

Introduction

Many buyers ask whether a badly neglected house can be treated as non-residential for Stamp Duty Land Tax (SDLT) because it was not fit to live in on the purchase date. This matters because, if a building is not “suitable for use as a dwelling” at the effective date of the transaction, different SDLT treatment may apply.

This area has become much harder for taxpayers following recent case law. A property in poor condition is not automatically outside the residential SDLT rules. The current legal threshold is relatively high, especially after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer purchased a repossessed house and believed it was uninhabitable at completion. The reported problems included damp and mould caused by water ingress, damage to part of a wall, damaged ceilings, a non-working boiler, outdated electrics, worn kitchen and bathroom fittings, poor decorative condition, and unsafe or neglected external areas including fencing, steps and overgrown garden areas.

The buyer wanted to know whether those defects could mean the property was not suitable for use as a dwelling for SDLT purposes, and whether it was sensible to wait for developments in the case law before taking action.

Nick’s Explanation

Nick’s core point was that the legal position had shifted sharply because of the Mudan litigation. In anonymised form, his explanation was that HMRC had become much more confident in resisting “uninhabitable dwelling” claims and that buyers needed to proceed carefully.

He explained, in substance, that:

• there had been a recent change in case law on what counts as “suitable for use as a dwelling”;
• HMRC were taking a firmer line after their success in the Mudan case;
• claims based on poor condition were likely to face close scrutiny;
• where time limits were approaching, protective action might be needed, but otherwise it could be sensible to monitor the appeal position first.

That approach reflected a practical tax risk point: even where a buyer genuinely believes a house was uninhabitable, the legal test is stricter than many people expect.

The Law

SDLT is charged under the Finance Act 2003. Whether property is “residential property” is a statutory question. Broadly, a building counts as residential property if it is used as a dwelling or is suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

The key issue in these cases is usually the meaning of “suitable for use as a dwelling” at the effective date of the transaction, normally completion.

The legislation does not say that every defective, dated or inconvenient house is unsuitable. The courts have therefore had to decide where the line falls. Earlier tribunal decisions sometimes encouraged arguments that serious disrepair could take a property outside the residential rules. More recent higher-court authority has narrowed that route significantly.

Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold is now relatively high. The question is not whether the property was attractive, modern, mortgageable, or in need of major works. The question is whether, viewed realistically, it was still suitable for use as a dwelling at the relevant date.

Analysis

When applying the current law, it helps to work through the defects one by one and then stand back and look at the building as a whole.

First, general disrepair usually does not make a house non-residential. Peeling paint, dated rooms, worn finishes, overgrown gardens, broken fencing and neglected external areas are usually treated as matters of condition and repair, not as reasons why a building stops being a dwelling.

Second, the absence of modern facilities does not necessarily prevent a property from being suitable for use as a dwelling. An outdated kitchen, old bathroom, old lighting or old electrics may justify renovation, but they do not automatically mean the building has crossed the legal threshold.

Third, some more serious defects still may not be enough on their own. A non-functioning boiler, damp, mould, ceiling damage or localised structural repair needs can be significant, but the courts now look closely at whether the building nevertheless remained fundamentally capable of residential occupation. A house can require expensive works and still be classed as residential for SDLT.

Fourth, the test is applied at the purchase date. Later renovation costs, later discoveries, or the buyer’s plans for a full refurbishment do not decide the issue. The question is the property’s actual condition at completion.

Fifth, the courts tend to distinguish between:

• a building that is still recognisably a dwelling but in poor or even very poor condition; and
• a building that has deteriorated so far, or lacks such essential features, that it is no longer suitable for use as a dwelling at all.

After Mudan, the second category is narrower than many taxpayers had hoped. The threshold is now relatively high. In practical terms, a buyer usually needs something more than serious disrepair or the need for substantial modernisation. The defects generally need to show that the property had ceased to be suitable for residential use in any real sense at the effective date.

On facts like these, HMRC would be likely to argue that the property was still a dwelling despite needing major works. Damp, mould, damaged ceilings, a broken boiler, outdated fittings and unsafe garden features are all points that may support a narrative of poor condition, but they do not automatically establish legal unsuitability.

Outcome

The practical conclusion is that a run-down repossessed house will not usually fall outside the residential SDLT rules just because it needed extensive repair or refurbishment.

Given the current state of the law, especially after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, a claim based on “uninhabitable condition” is harder to sustain than it once appeared. The threshold is relatively high, and many properties that buyers regard as uninhabitable in everyday language will still be treated as suitable for use as a dwelling in law.

Practical Steps

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

• identify the exact effective date of the transaction;
• gather contemporaneous evidence of the property’s condition at that date, including survey reports, photographs, contractor reports, auction particulars and completion documents;
• separate true habitability issues from general disrepair, cosmetic problems and modernisation needs;
• check whether any amendment or repayment time limit is approaching;
• review the position against current case law, especially Mudan;
• consider carefully the risk of HMRC enquiry if a claim is made.

Where a deadline is close, the timing of any filing decision may matter. Where there is still time, it is usually better to assess the evidence against the latest authorities rather than relying on older assumptions about what “uninhabitable” means.

Conclusion

A property can be in very poor condition and still count as residential for SDLT. The modern test is strict. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, only more extreme cases are likely to succeed on the basis that the building was not suitable for use as a dwelling at completion.

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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