Can an uninhabitable property be treated as non-residential for SDLT?

Introduction

Buyers often ask whether a badly damaged or derelict house can be taxed as non-residential property for Stamp Duty Land Tax (SDLT). This matters because the SDLT bill can be much lower if the building is not treated as a dwelling at the date of completion.

The difficulty is that the legal test is now strict. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold for showing that a building is not suitable for use as a dwelling is relatively high. Serious disrepair is not enough on its own. The question is whether, objectively, the building is capable of safe and lawful occupation as a dwelling at the effective date of the transaction.

The Question

A buyer was proposing to purchase a heavily dilapidated house for around £885,000. A survey described major structural movement, cracking, wall separation, failing floors, water ingress affecting electrics, and the absence of functioning kitchen, bathroom and drainage facilities. The surveyor considered the building unsafe to occupy and even dangerous to work on, with demolition recommended.

The buyer also had another SDLT issue. Their own previous main residence was being sold, but their spouse still owned another dwelling which had once been the family home and had since become a buy-to-let property. The buyer wanted to know:

• whether the new purchase could be treated as non-residential because of its condition;
• whether the higher rates for additional dwellings would otherwise apply; and
• whether an EPC or asbestos report would help support the SDLT position.

Nick’s Explanation

Nick’s view was that if the purchase were treated as residential, the higher rates under Schedule 4ZA Finance Act 2003 would apply because spouses are generally treated as one unit for these purposes. Since the spouse still owned another dwelling at completion, the purchase would not qualify as a straightforward replacement of a main residence.

He also explained that the replacement of main residence refund rules would not assist where the other former home had not been occupied as a main residence within the required three-year period.

On the condition issue, Nick focused on section 116(1)(a) Finance Act 2003 and the Court of Appeal’s decision in Mudan v HMRC [2025] EWCA Civ 799. In anonymised form, his reasoning was:

“Mere disrepair or inconvenience does not suffice. The building must be genuinely unsafe or uninhabitable. The test is not comfort or convenience, but safety and structural integrity.”

He distinguished the reported survey findings from the facts in Mudan. In his view, where a survey shows structural instability, dangerous floors, hazardous electrics, and a building that is unsafe even for contractors, the case for non-residential treatment is much stronger than in an ordinary renovation case.

Nick also said that an EPC would usually add little in this context, because it is concerned with energy efficiency rather than whether the building is safe to occupy. An asbestos report, however, could be useful if it showed widespread or friable asbestos affecting the fabric of the building, because that may support the argument that the defects go beyond normal refurbishment and require substantial reconstruction.

The Law

Section 116(1)(a) Finance Act 2003 defines residential property to include a building that is “used or suitable for use as a dwelling”. If a building is not used or suitable for use as a dwelling at the effective date of the transaction, it may fall outside the residential SDLT rules and be taxed as non-residential or mixed property, depending on the facts.

The key authority is Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal confirmed that:

• the condition of the property must be assessed at the effective date of the transaction;
• the test is objective and based on a reasonable occupier;
• the issue is whether the building is capable of safe, lawful occupation as a dwelling; and
• serious disrepair, lack of amenities, or the need for renovation does not automatically mean the property is not suitable for use as a dwelling.

For higher rates, Schedule 4ZA Finance Act 2003 applies where, at completion, the buyer owns another dwelling and the purchase is not an exempt replacement of a main residence. Married couples and civil partners living together are generally treated as one unit, so a dwelling owned by one spouse can affect the SDLT position of the other.

The replacement of main residence exception and refund rules depend on strict timing conditions. Broadly, the sold dwelling must have been the buyer’s only or main residence within the relevant three-year period.

Analysis

There are two separate SDLT questions here.

First, if the building is still a dwelling for section 116 purposes, the transaction is residential. On these facts, the spouse’s retained buy-to-let dwelling would normally trigger the higher rates under Schedule 4ZA, unless the purchase qualifies as a replacement of a main residence. If the retained property stopped being the family home more than three years earlier, that usually prevents reliance on the replacement rules in relation to that property.

Secondly, the buyer may try to show that the purchased building was not suitable for use as a dwelling at completion. This is where Mudan is central. The courts now require more than poor condition, outdated services, or a house in need of major works. The condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

So what sort of evidence may point towards non-residential treatment?

• serious structural movement or subsidence affecting stability;
• separation of load-bearing walls or major cracking threatening collapse;
• collapsed or unsafe floors;
• dangerous electrical conditions caused by water ingress;
• absence of basic facilities together with wider structural danger;
• professional evidence that the building is unsafe to occupy and unsafe even for works without major intervention;
• evidence that demolition or partial reconstruction is required rather than ordinary repair.

On the survey findings described, the case is stronger than a standard “unmodernised house” argument. If a surveyor concludes that the building is dangerous, unoccupiable, and beyond economical repair, that goes directly to the statutory test of suitability for use as a dwelling.

Even so, buyers should be cautious. HMRC may still argue that the building remained a dwelling if it had the basic character of a house and could, with extensive works, be restored. The better the evidence of real danger to life, health or structural safety, the stronger the taxpayer’s position.

As for supporting documents:

• an EPC is usually of limited value because it assumes a functioning building and addresses energy performance, not habitability;
• an asbestos report can help if it shows substantial hazardous asbestos contamination affecting whether the building can safely be occupied or repaired.

Outcome

If a severely defective building is still legally and physically capable of safe occupation, it is likely to remain residential for SDLT, even if no ordinary buyer would move in immediately. That is the effect of Mudan.

But where the evidence shows structural instability, dangerous floors, hazardous electrics, and a building unsafe both to occupy and to work on, there may be a credible basis for treating the purchase as non-residential under section 116 Finance Act 2003.

If the property is treated as residential instead, the higher rates may apply where a spouse still owns another dwelling and the replacement of main residence rules are not satisfied.

Practical Steps

If you are considering a non-residential SDLT filing because a house is uninhabitable, the practical steps are:

1. Obtain a detailed structural survey addressing safety, stability and whether the building is fit for occupation at completion.
2. Ask the surveyor to be clear about whether the defects amount to danger, not just disrepair.
3. Consider additional specialist reports where relevant, such as asbestos, structural engineer, drainage or electrical safety evidence.
4. Do not rely on an EPC as key evidence of unsuitability for use as a dwelling.
5. Review whether you or your spouse own any other dwellings at completion, because that may trigger higher rates if the property is residential.
6. Check carefully whether any sold property was your only or main residence within the statutory three-year period for replacement relief or refund purposes.
7. Make sure the SDLT return reflects the evidence available at the effective date of the transaction.

Conclusion

A derelict or dangerous house can sometimes be treated as non-residential for SDLT, but the legal threshold is now demanding. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the question is whether the building was objectively capable of safe and lawful occupation as a dwelling at completion. Severe structural danger may satisfy that test. Ordinary disrepair usually will not.

Legal References Used

• Finance Act 2003, section 116(1)(a)
• Finance Act 2003, Schedule 4ZA
• 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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