Can you reclaim SDLT if one of two purchased dwellings was not suitable for use as a dwelling?

Introduction

Buyers sometimes pay Stamp Duty Land Tax (SDLT) on the basis that a purchase included two dwellings, only to later ask whether the tax treatment should have been different because one unit was in such poor condition that it was not really a dwelling at all at completion.

This issue matters because the SDLT result can change significantly. In some cases, a transaction first treated as qualifying for Multiple Dwellings Relief (MDR) may instead be better analysed as a mixed-use purchase if one of the units was not suitable for use as a dwelling. If that is right, the non-residential SDLT rates may apply to the whole linked transaction, potentially producing a refund.

The difficulty is that the legal threshold for showing a property was not suitable for use as a dwelling is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer purchased a building made up of two units and SDLT was originally calculated on the basis that both units were dwellings, with MDR claimed on that footing. After completion, the buyer reviewed the condition of one of the units and considered whether it had been so unsafe, damaged or fundamentally altered that it was not suitable for use as a dwelling at the effective date of the transaction.

The buyer had photographs from the time of purchase but no structural survey. The practical question was whether that damaged unit could be treated as non-residential, so that the linked purchase of one residential unit and one non-residential unit would be taxed as mixed-use under the Finance Act 2003.

Nick’s Explanation

Nick’s view was that there was a credible argument for a reclaim if the evidence showed that one unit was not suitable for use as a dwelling when the purchase completed.

In anonymised form, his reasoning was:

“The original SDLT treatment assumed the property comprised two dwellings, which reduced the tax through MDR. However, if one of those units was not suitable for use as a dwelling at completion, the purchase can instead fall to be treated as mixed-use under section 116 of the Finance Act 2003. In a linked transaction involving one residential and one non-residential property, the non-residential rates apply to the transaction as a whole.”

He identified two possible lines of argument:

• the damaged unit was in a ruinous and unsafe condition, with serious defects making occupation unsafe; and
• the physical configuration and character of the unit were no longer consistent with a self-contained dwelling.

He also recognised the main difficulty: HMRC would be likely to argue that a property does not cease to be suitable for use as a dwelling merely because it requires repair, renovation or even substantial works. That reflects the stricter approach now confirmed by the Court of Appeal in Mudan.

The Law

SDLT is charged under the Finance Act 2003. Whether property is residential or non-residential is crucial because different rate tables apply.

Under section 116 of the Finance Act 2003, property is “residential property” 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;
• land that forms part of the garden or grounds of such a building; or
• an interest or right over land that subsists for the benefit of such a building or land.

Property that is not residential property is non-residential property.

Where a transaction includes both residential and non-residential property, it is treated as a mixed transaction and the non-residential SDLT rates apply.

For linked transactions, the legislation requires the relevant tax treatment to be worked out by reference to the transaction as a whole. If the linked acquisition includes one dwelling and one non-residential unit, the mixed-use analysis may produce a lower SDLT charge than a purely residential analysis.

The key phrase in disputes of this kind is “suitable for use as a dwelling”. That phrase has been considered in a number of SDLT cases, and the Court of Appeal’s decision in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 now sets an important and relatively demanding threshold.

Mudan makes clear that the test is not simply whether a property was ready for immediate occupation or whether works were needed. Many buildings remain suitable for use as dwellings even if they are dated, damaged, unmodernised or temporarily uninhabitable in a practical sense. The court focused on the building’s fundamental character and whether the state of disrepair or alteration is so serious that the building has ceased to have the identity of a dwelling.

Analysis

The analysis usually has to be carried out in stages.

First, identify exactly what was bought at the effective date of the transaction. The question is not what the buyer intended to do later, or what the property became after renovation. The focus is the condition and character of the property at completion.

Second, ask whether each unit was in fact a dwelling, or at least suitable for use as one. This is where many claims fail. A property can still be “suitable for use as a dwelling” even if it has serious defects, lacks modern fittings, needs rewiring, has damp, has suffered neglect, or cannot lawfully or safely be occupied without works. The courts have repeatedly rejected the idea that ordinary disrepair is enough.

Third, consider whether the evidence shows something more extreme. After Mudan, an uninhabitable or not suitable for use case usually needs very strong facts. The threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The best arguments tend to arise where:

• the condition was ruinous or dangerous in a way that prevented safe occupation;
• the required works were exceptionally extensive, invasive or hazardous;
• the property had lost essential physical characteristics of a dwelling; or
• the layout or configuration meant it no longer had the identity of a domestic residence.

Fourth, if one unit in a linked purchase was not suitable for use as a dwelling, it may be treated as non-residential. If the other unit was residential, the linked acquisition may then be taxed as mixed-use, with non-residential rates applying.

In a scenario like this, the argument is stronger if both of the following can be shown:

• condition: the damaged unit was unsafe or effectively ruinous at completion; and
• configuration: the damaged unit was not laid out or functioning as an ordinary self-contained dwelling.

That combination is more persuasive than relying on disrepair alone.

The evidence also matters greatly. Photographs taken at the time of purchase can be useful, especially if they show exposed electrics, structural damage, missing facilities, dangerous access, stripped-out rooms, or a layout inconsistent with domestic living. A survey is helpful but not always essential. Other useful evidence may include:

• the sales particulars;
• the contract pack;
• completion statements and SDLT return details;
• builder or electrician reports prepared soon after purchase;
• insurance or mortgage material; and
• floor plans showing an unusual or non-domestic layout.

It is also important to remember that if MDR was originally claimed on the basis that there were two dwellings, a later reclaim based on one unit not being a dwelling involves a change in legal analysis. That is possible, but the revised position must be coherent and properly evidenced.

Outcome

If one of two purchased units was genuinely not suitable for use as a dwelling at completion, there may be a basis for amending the SDLT position and claiming that the linked transaction was mixed-use rather than a purchase of two dwellings.

That can reduce SDLT and create a repayment.

However, these claims are now harder than many buyers assume. After Mudan, the fact that a property was in poor condition, required major refurbishment or could not be occupied immediately will not by itself be enough. A successful claim usually needs evidence that the condition or configuration had crossed a much higher threshold and that the unit had effectively ceased to be a dwelling at the relevant date.

Practical Steps

If you want to assess whether a reclaim is realistic, gather the following:

• the TR1 or transfer;
• the sale contract;
• the SDLT5 certificate;
• the completion statement;
• photographs showing the property at or near completion;
• any reports on electrics, structure, safety or condition;
• floor plans and sales particulars; and
• details of how the original SDLT return was completed, including whether MDR was claimed.

Then work through these questions:

1. Was the purchase originally treated as involving two dwellings?
2. At completion, was one unit merely in disrepair, or was it actually unsafe, ruinous or no longer recognisable as a dwelling?
3. Was the layout still that of a self-contained home, or had its character fundamentally changed?
4. If one unit was non-residential, were the acquisitions linked so that mixed-use treatment could apply?
5. Is there enough contemporaneous evidence to support that position if HMRC opens an enquiry?

Where the case depends on condition, contemporaneous evidence is usually decisive. The closer the evidence is to the completion date, the better.

Conclusion

A buyer may be able to reclaim SDLT where a purchase first treated as two dwellings should instead have been treated as mixed-use because one unit was not suitable for use as a dwelling at completion. But the legal test is strict. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition threshold is relatively high, so only stronger fact patterns are likely to succeed.

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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