Can you claim SDLT non-residential rates if a house was uninhabitable at purchase?

Introduction

Many buyers ask whether Stamp Duty Land Tax (SDLT) should have been charged at residential rates where the building they bought was in such poor condition that it could not be lived in. This usually comes up after purchase, when the buyer has carried out major works or even demolished and rebuilt the property.

The key issue is whether the property was “suitable for use as a dwelling” on the effective date of the transaction. If it was not, it may fall outside the residential definition in the Finance Act 2003, which can affect the SDLT treatment and potentially support a refund claim. However, the legal threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer purchased an older dwelling that had been vacant for some time and was in very poor condition. The reported issues included serious damp, water ingress, mould, roof defects, timber problems and general degradation. The buyer says the property could not realistically be occupied and that professional advice at the time was that demolition and rebuilding was the proper course, rather than repair.

Planning material later supported demolition and replacement. The buyer also relied on surrounding evidence such as building records, photographs, contractor involvement and local authority treatment of the property as uninhabitable for council tax purposes. The question is whether those facts are enough to argue that, at the date of purchase, the building was not suitable for use as a dwelling and should have been treated as non-residential for SDLT purposes.

Nick’s Explanation

Nick’s reasoning was that the claim turns on section 116(1)(a) of the Finance Act 2003 and the modern case law on what counts as a dwelling. In anonymised form, his point was:

“This claim is made on the basis that, at the effective date of the transaction, the property was not suitable for use as a dwelling as defined in section 116(1)(a) of the Finance Act 2003.”

He then relied on the Court of Appeal’s approach in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. In summary, the test is objective. The question is not simply whether the property was unpleasant, outdated, or incapable of immediate occupation without work. The real question is whether, viewed objectively at the effective date, it had lost the fundamental character of a dwelling.

Nick highlighted factors such as:

• whether the building had previously been used as a dwelling;
• whether it still retained the structural and functional features of a home;
• whether the necessary works were repair works or something much more fundamental;
• whether the building was unsafe or dangerous to occupy; and
• whether, in substance, what was acquired was really a redevelopment site rather than a usable home.

His analysis was that where the evidence shows demolition and complete reconstruction were necessary, and planning documents describe the building as being in a very poor state of repair and unsuitable for modern living, that can support an argument that the building had ceased to function as a dwelling. He also treated demolition as objective evidence that the defects went beyond ordinary disrepair.

The Law

SDLT on land transactions is charged under the Finance Act 2003. For this issue, the important provision is section 116, which deals with the meaning of “residential property”. Broadly, property is residential if it consists of or includes a building that is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

If a building is not suitable for use as a dwelling at the effective date, it may fall outside the residential definition in section 116(1)(a). In that event, the transaction may be taxed using the non-residential rate table, commonly referred to as Table B.

The difficult part is deciding what “suitable for use as a dwelling” means. The courts have made clear that this is an objective test based on the condition of the property at the effective date of the transaction. It is not enough that the buyer intended to redevelop it, or that the property needed significant expenditure, or that it failed to meet modern expectations.

The leading authority now is Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Following that decision, the condition thresholds in uninhabitable or not suitable for use cases are relatively high. Minor or even fairly serious disrepair will not necessarily stop a building from being a dwelling for SDLT purposes if it still retains the essential nature of a home.

Analysis

The starting point is the effective date of the transaction, usually completion. The condition of the property must be assessed at that date, not by reference to later works alone.

Step one is to identify whether the building still looked and functioned, in substance, like a dwelling. A property may be run-down, damp, dated, dirty or in need of extensive repair and still remain suitable for use as a dwelling in the SDLT sense.

Step two is to consider the severity of the defects. Evidence of roof failure, serious damp, mould, water ingress, timber decay, structural danger, missing facilities, or other major defects can help. But after Mudan, the question is whether those defects were so serious that the building had lost its identity as a dwelling, not merely whether it was unpleasant or impractical to occupy immediately.

Step three is to review objective evidence created close to the purchase date. This may include:

• survey or contractor evidence;
• photographs and videos;
• planning documents;
• design and access statements;
• structural reports;
• correspondence showing advice to demolish rather than repair;
• insurance or safety concerns; and
• evidence from the local authority, including council tax treatment.

Step four is to assess how much weight that evidence really carries. Planning permission for demolition and replacement can be helpful, especially where the planning material describes the building as being in a very poor state. But planning permission on its own does not decide the SDLT issue. Many habitable buildings are demolished for redevelopment. The same is true of later demolition itself: it is relevant evidence, but it does not automatically prove that the building was not a dwelling at completion.

Step five is to distinguish between “not fit for modern living standards” and “not suitable for use as a dwelling” in the legal sense. That distinction matters. A building may be obsolete, neglected and economically irrational to repair, but still remain a dwelling for SDLT purposes if it retains the basic characteristics of one.

On the facts described here, the case for non-residential treatment is stronger than in ordinary disrepair cases because the buyer points to extensive defects, evidence of longstanding deterioration, professional advice that demolition was necessary, and planning material supporting complete replacement. If the evidence shows the building was effectively beyond repair as a home and had become, in substance, a redevelopment site with a failed structure on it, that may satisfy the test.

Even so, readers should understand that HMRC often resists these claims, and the Court of Appeal has made clear that the threshold is demanding. The fact that a council accepted the property as uninhabitable for council tax purposes may support the factual picture, but it is not conclusive for SDLT because the statutory tests are different.

Outcome

A buyer may have a viable SDLT refund argument where the property was in such extreme condition at completion that it was objectively not suitable for use as a dwelling. In that situation, non-residential rates under Table B may apply instead of residential rates.

However, success depends on strong contemporaneous evidence. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold is relatively high. Ordinary dilapidation, outdated condition, or the need for substantial works will often not be enough on their own.

Practical Steps

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

1. Identify the effective date of the transaction and focus all evidence on the property’s condition at that date.
2. Gather contemporaneous photographs, surveys, contractor emails, planning papers and any records showing the extent of the defects.
3. Check whether the evidence shows repair was realistic, or whether the building had truly ceased to function as a dwelling.
4. Review any planning or design statements carefully. Helpful wording can support the argument, but it should be read alongside the rest of the evidence.
5. Do not assume that later demolition, council tax exemption, or redevelopment intention is enough by itself.
6. Measure the facts against the Court of Appeal guidance in Mudan, especially the need to show loss of the property’s fundamental character as a dwelling.
7. If making a reclaim, prepare a clear chronology and a structured legal submission explaining why section 116(1)(a) was not satisfied at completion.

Conclusion

You can potentially claim that a severely defective property should have been treated as non-residential for SDLT, but the legal test is strict. The question is not simply whether the building was uninhabitable in everyday language. The question is whether, objectively, it was no longer suitable for use as a dwelling at the effective date. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, only genuinely extreme cases are likely to succeed.

Legal References Used

• Finance Act 2003, section 116(1)(a)
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• Finance Act 2003 non-residential rate table, commonly referred to as Table B

This page was last updated on 22 March 2026.

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