SDLT Reclaims on Poor Condition Property After Mudan v HMRC
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Can you reclaim SDLT if a property has serious defects or is not suitable for use as a dwelling?
Introduction
Many buyers ask whether Stamp Duty Land Tax (SDLT) can be reclaimed where a property has major defects at the time of purchase. The issue usually arises where the buyer completes the purchase, pays SDLT on the basis that the property is residential, and then considers whether the property was actually not suitable for use as a dwelling on the effective date of the transaction.
This is an important question because the SDLT treatment of a property depends on its condition at completion. However, the legal threshold is now demanding. A property does not cease to be residential simply because it needs repair, has damp, roof problems, defective windows or other serious disrepair. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold for arguing that a property was uninhabitable or not suitable for use is now relatively high.
The Question
A buyer was purchasing a dwelling for £365,000. Before completion, the buyer obtained a survey with photographs showing a number of condition issues, including problems with the roof, chimney, gutters, damp and water ingress through windows. The buyer wanted to know whether they could complete the purchase, pay SDLT at residential rates, and then make an overpayment reclaim on the basis that the property was not suitable for use as a dwelling at the time of purchase.
Nick’s Explanation
Nick reviewed the survey and identified the main defects as including:
- inadequate chimney flashing and pointing
- risk of falling masonry
- roof disrepair
- damaged gutters
- penetrating damp
- damp around window reveals
- windows in poor condition allowing water ingress
His view at the time was that these issues gave the buyer a basis to consider an SDLT overpayment reclaim based on condition. He also explained the practical process: once the purchase completed, the claim could be prepared using the transaction documents and supporting evidence, with HMRC paying any repayment directly to the taxpayer if the claim succeeded.
For a public-facing explanation, the key point in Nick’s reasoning is this: significant physical defects can justify looking closely at whether the property was suitable for use as a dwelling on completion, but the existence of serious disrepair on its own does not guarantee that a reclaim will succeed.
The Law
The starting point is the distinction in the Finance Act 2003 between residential and non-residential property for SDLT purposes.
Under section 116 Finance Act 2003, property is residential if it is:
- 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, and
- land that forms part of the garden or grounds of such a building.
If, at the effective date of the transaction, the building is not suitable for use as a dwelling, it may fall outside the residential definition. That can affect the SDLT rate charged.
HMRC’s guidance has long taken a restrictive approach to claims based on disrepair. The question is not whether the property is attractive, modern, mortgageable or in need of substantial works. The question is whether, viewed objectively at the date of completion, it was suitable for use as a dwelling.
The leading modern authority is Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal confirmed that the test is strict and that the threshold for showing a property was unsuitable for use as a dwelling is relatively high. Ordinary or even serious disrepair will often not be enough. The court’s reasoning makes clear that many properties requiring extensive refurbishment remain residential for SDLT purposes.
Analysis
The analysis usually works in five steps.
Identify the condition of the property at completion
The relevant date is the effective date of the transaction, usually completion. Evidence created close to that date matters most. A surveyor’s report, photographs, contractor opinions and legal completion papers are all relevant.
Separate disrepair from true unsuitability for use
Many defects sound serious but still leave a property legally residential. Damp, leaks, defective windows, damaged gutters, roof wear, outdated services and general deterioration may require expensive works, but they do not automatically mean the property cannot be lived in.
Ask whether the dwelling could realistically function as a home on that date
The test is objective. Could the building be used as a dwelling at the time of purchase? If the answer is yes, even in poor condition, the property is likely still residential. Cases are stronger where there are fundamental failures such as the absence of basic facilities, major structural collapse, or conditions making occupation genuinely impossible rather than merely undesirable.
Apply the higher threshold after Mudan
This is now the critical point. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold for saying a property was uninhabitable or not suitable for use as a dwelling is relatively high. A buyer should be cautious before assuming that a poor survey report is enough. Even multiple serious defects may still fall short if the property retained the essential character of a dwelling.
Consider whether an amendment or reclaim is procedurally available
If too much SDLT was paid, the buyer may need to amend the SDLT return or make a repayment claim, depending on timing and the procedural route available. The claim must be supported by evidence showing why the original treatment was wrong at the effective date.
On the facts described here, the defects are substantial and justify careful review. But viewed through the current legal position, defects such as chimney problems, roof disrepair, damaged gutters, damp and poor windows will not necessarily establish that the property was unsuitable for use as a dwelling. In many cases, HMRC would argue that these are repair issues affecting condition and value, not the legal character of the building as residential property.
Outcome
The practical conclusion is that a buyer in this situation may investigate a reclaim, but should not assume that it will succeed simply because the survey records serious defects. The present law sets a demanding standard. After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, an uninhabitable or not suitable for use argument will usually only succeed where the property’s condition goes well beyond ordinary or even major disrepair.
In short, serious defects can support a claim review, but the legal test is whether the property was objectively unsuitable for use as a dwelling at completion, and that is now a relatively difficult threshold to meet.
Practical Steps
If you are assessing this kind of SDLT issue, the sensible next steps are:
- obtain the full survey report and dated photographs from around completion
- review the sale contract, transfer, SDLT5 and completion statement
- identify exactly what facilities or structural elements were missing or failed at completion
- distinguish between expensive repair needs and genuine inability to use the building as a home
- check the timing for any SDLT amendment or reclaim
- compare the facts carefully against the approach confirmed in Mudan
Where the case depends on condition, the evidence must be precise. General statements that the property was in poor condition, needed renovation or was not mortgageable are usually not enough on their own.
Conclusion
A property with major defects is not automatically non-residential for SDLT purposes. The key legal question is whether it was suitable for use as a dwelling at the date of completion. That threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Buyers should therefore approach any SDLT reclaim based on property condition with careful evidence and realistic expectations.
Legal References Used
- Finance Act 2003, section 116
- 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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