Can a flat qualify for mixed-use SDLT because the building has a gym or other commercial facilities?

Introduction

Buyers sometimes ask whether a flat can be treated as mixed-use for Stamp Duty Land Tax (SDLT) if the wider building includes a gym, leisure area or other facility that may have a commercial element. That matters because mixed-use property is charged at non-residential SDLT rates, which can be much lower than residential rates.

Another common argument is that the dwelling was not suitable for use as a residence at the effective date of the transaction because of disrepair or hazards such as water ingress. But that route is now difficult. In particular, the threshold for showing a property was not suitable for use is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

This article explains how those arguments work, what evidence matters, and why the legal detail around rights attached to a flat is often decisive.

The Question

A buyer of a high-value flat in a larger apartment block wanted to know whether they might reclaim SDLT on either of two bases:

• that the purchase should have been treated as mixed-use because the building included gym facilities or another non-residential element; or
• that the flat was not suitable for use as a dwelling at the relevant date because of condition issues, including water ingress.

The documents also raised a basic evidential point: whether there was a properly signed sale contract and whether the transaction paperwork was consistent.

Nick’s Explanation

Nick’s core view was that the mixed-use argument was potentially stronger than the habitability argument, provided the buyer could prove that the gym or similar facility was genuinely a separate non-residential element rather than merely an amenity enjoyed as part of residential ownership.

In anonymised form, his reasoning was:

• HMRC is likely to reject a weak evidential case, especially if the key transaction documents are unsigned or inconsistent.
• Photos showing water ingress may help explain condition problems, but that does not automatically mean the flat was non-residential or unsuitable for use as a dwelling.
• If a gym in the building is separately leased, commercially operated, and not simply a right attached to the ownership of the flat, there may be an argument that the transaction involved mixed-use property.
• The key concern is whether the use of the facility is a right appurtenant to the flat. If it is, that may point back toward the purchase being residential rather than mixed-use.

Nick also highlighted the practical need for documents such as the lease for the flat and evidence showing how the gym or other facility was owned, occupied, managed and rated.

The Law

SDLT is charged under the Finance Act 2003. The legislation distinguishes between residential property and non-residential or mixed-use property. In broad terms:

• residential property includes a building used or suitable for use as a dwelling, and land that is or forms part of the garden or grounds of such a building;
• mixed-use property is property that is not entirely residential, so that the transaction includes both residential and non-residential elements.

The main statutory starting point is section 116 of the Finance Act 2003, which defines residential property. If a transaction is not wholly residential within that definition, non-residential rates may apply.

In flat and apartment block cases, the difficult question is often whether access to communal facilities is simply part of the residential rights enjoyed with the flat, or whether there is a distinct non-residential element included in the transaction.

The phrase “right appurtenant” is important in this area. If a facility is enjoyed as a legal benefit attached to the flat, that may support HMRC’s position that it is part of the residential interest rather than a separate non-residential component.

On the condition argument, case law has made clear that not every defect or repair issue means a property is unsuitable for use as a dwelling. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold is relatively high. Serious disrepair, inconvenience or the need for works is not enough by itself. The question is whether, at the effective date of the transaction, the property was truly not suitable for use as a dwelling.

Analysis

The correct analysis usually involves four steps.

First, check the transaction evidence. A reclaim case needs a clear documentary foundation. If the sale contract is unsigned, altered inconsistently, or otherwise incomplete, HMRC is likely to challenge the reliability of the claim. The lease, transfer, completion statement and SDLT return should all be checked carefully.

Second, identify exactly what was acquired. In a flat purchase, the answer is often found in the lease and any rights granted by it. If the buyer acquired only a long lease of a dwelling together with ordinary communal rights, HMRC will usually say the transaction was residential. If, however, the transaction included or depended on a separately identifiable commercial unit or non-residential legal interest, the position may be different.

Third, analyse the gym or other facility. Questions that matter include:

• Is the gym demised under a separate lease?
• Who occupies and manages it?
• Is it run by a third-party commercial operator?
• Are business rates paid on it?
• Do residents merely have access by licence or membership, rather than by a right attached to their flat?
• Does the flat lease refer to the facility as part of the rights enjoyed with the dwelling?

If the gym is a genuinely separate commercial element, that may support a mixed-use argument. But if it is simply a residents’ amenity attached to the flats, the argument becomes much weaker.

Fourth, assess the condition argument realistically. Water ingress, leaks and damage can be relevant, but they do not automatically take a property outside the residential definition. The present legal position after Mudan is that the courts apply a relatively demanding test. A property can still be “suitable for use as a dwelling” even if it needs repair, even if it has defects, and even if a buyer would not sensibly move in immediately. The issue is whether it had crossed the line into genuine unsuitability for residential use at the effective date.

That means a buyer relying on condition will usually need strong contemporaneous evidence, such as:

• surveyor reports prepared close to completion;
• evidence of serious health and safety hazards;
• evidence that essential living functions could not be carried out;
• dated photographs and contractor evidence;
• clear proof of the condition on the effective date, not just later remedial works.

References to the Housing Health and Safety Rating System may help describe hazards, but they are not a substitute for the statutory SDLT test.

Outcome

The practical conclusion is that a mixed-use SDLT reclaim for a flat in a larger block may be arguable if there is strong evidence that a gym or similar facility is a separate non-residential element and not merely a residential right attached to the flat.

By contrast, a claim based on the flat being unsuitable for use as a dwelling because of water ingress or similar defects is now harder to sustain. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold is relatively high.

So, where both arguments are being considered, the mixed-use analysis may be the more promising route, but only if the legal and factual evidence is strong.

Practical Steps

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

1. Obtain the signed contract, transfer and SDLT filing documents.
2. Review the flat lease in full, especially the rights granted over common parts and facilities.
3. Find out whether the gym or other facility is held under a separate lease or licence.
4. Check who operates the facility, whether it is run for profit, and whether business rates are paid.
5. Identify whether residents use the facility because of a right attached to the flat or by some separate arrangement.
6. If relying on condition, gather contemporaneous survey and repair evidence showing the exact state of the property on the effective date.
7. Compare the facts carefully against current case law before making or amending any SDLT reclaim.

Conclusion

A flat does not become mixed-use simply because the building has a gym. The key question is whether the facility is a genuinely separate non-residential element or just part of the residential rights enjoyed with the flat. And where the argument is that the dwelling was uninhabitable, the legal threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Legal References Used

• Finance Act 2003, section 116
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• UKFTT decision referenced in the source material concerning “right appurtenant”: https://caselaw.nationalarchives.gov.uk/ukftt/tc/2024/158

This page was last updated on 22 March 2026.

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