Can subsidence in an extension make a property unsuitable for use as a dwelling for SDLT?

Introduction

Many buyers search for this issue after hearing that Stamp Duty Land Tax (SDLT) may have been overpaid where a property was not suitable for use as a dwelling on the purchase date. A common question is whether serious defects in part of the building, such as a subsiding extension, water ingress, cracked walls and mould, are enough to take the property outside the residential SDLT rules.

The answer depends on the condition of the property as a whole at the effective date of the transaction. The legal threshold is now relatively high. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, not every defective or run-down property will qualify. Serious disrepair may still leave a building suitable for use as a dwelling. The more likely cases are those where the property needed reconstruction rather than ordinary repair or renovation.

The Question

A buyer purchased a home with a small extension directly off the kitchen. That extension had suffered subsidence. There were visible cracks to the walls and ceiling, the ceiling leaked because of movement, and black mould was present. The buyer wanted to know whether those facts could mean the property was unsuitable for use as a dwelling at the time of purchase, so that the SDLT treatment might be challenged.

Nick’s Explanation

Nick’s central point was that the current case law sets a demanding test. In anonymised form, his explanation was:

“The Court of Appeal decision in Mudan v HMRC explains the conditions needed before a property will be treated as unsuitable for use as a dwelling. My general rule of thumb is that if a property needs extensive renovation, it is still usually suitable for use as a dwelling. If it requires reconstruction, there is a stronger argument that it falls outside normal residential renovation and may have lost the identity and characteristics of a dwelling at the time of purchase.”

That is a useful practical distinction. SDLT cases in this area are not decided simply by asking whether the property was unpleasant, unsafe in some respects, or expensive to fix. The question is whether, viewed realistically on the purchase date, the building was still a dwelling in substance.

The Law

SDLT is charged under the Finance Act 2003. Whether the residential rates apply depends in part on whether the subject matter of the transaction included a building that was “used or suitable for use as a dwelling”, or was in the process of being constructed or adapted for such use.

The key statutory provisions are in Schedule 4ZA to the Finance Act 2003, which uses the concept of a dwelling for higher rates purposes, and the wider SDLT code which distinguishes residential from non-residential property. The case law on suitability for use as a dwelling is relevant across these issues.

The courts have repeatedly said that suitability is assessed at the effective date of the transaction. That means the actual physical condition at completion matters. Intended future works, a buyer’s redevelopment plans, or the fact that a lender required retention works do not by themselves decide the issue.

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 threshold is relatively high. A property can still be suitable for use as a dwelling even if it is dilapidated, in poor repair, or not presently comfortable to occupy. The question is not whether works are needed, but whether the building has ceased, in substance, to be a dwelling.

Analysis

In a case involving a damaged extension, the analysis should usually be done in the following stages.

First, identify the relevant unit of property. If the extension is part of a single house, the legal question is usually about the house as a whole, not just the defective part. A serious defect in one section does not automatically mean the entire building was unsuitable for use as a dwelling.

Second, consider the nature and extent of the defects. Subsidence, cracking, leaks and mould are all important facts. They may show serious structural movement and health risks. But those facts alone do not answer the SDLT question. The real issue is whether the defects were so severe that the property required reconstruction, or had effectively lost its character as a dwelling.

Third, ask whether the rest of the property remained capable of ordinary residential occupation. If the main structure, kitchen, bathroom, sleeping areas and essential services remained substantially functional, HMRC is likely to argue that the property was still suitable for use as a dwelling, even if one extension was defective and major works were needed.

Fourth, distinguish renovation from reconstruction. This is where Nick’s rule of thumb is helpful. If the works involved stabilisation, repair, replacement of damaged finishes, treatment of mould, local rebuilding and making good, that often still looks like renovation or substantial repair. If, however, the extension or a significant part of the building had to be demolished and rebuilt because it was structurally beyond repair, the argument becomes stronger.

Fifth, focus on evidence from the purchase date. The best evidence is usually a contemporaneous structural engineer’s report, survey, photographs, contractor assessments, and any material showing whether occupation was realistically possible. Evidence created much later can still help, but contemporaneous documents usually carry more weight.

On the facts described, a damaged kitchen extension with subsidence, visible cracking, leaks and black mould may show a serious defect, but it does not automatically mean the whole property was unsuitable for use as a dwelling. If the rest of the house remained usable and the extension could be repaired as part of a major renovation project, the claim is likely to be difficult after Mudan. If the structural movement was so severe that the extension, or more of the dwelling, required demolition and rebuilding, the position is stronger.

Outcome

The practical conclusion is that defects in an extension can support an SDLT uninhabitable argument, but only in stronger cases. The current legal threshold is relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. A property that merely needs extensive repair or renovation will often still be treated as a dwelling for SDLT purposes. A better argument usually requires evidence that the property, or a substantial part of it, required reconstruction and had lost the essential character of a dwelling at the purchase date.

Practical Steps

If you are assessing a possible claim, the sensible next steps are:

• Obtain the survey, structural engineer’s report and any contractor reports that existed at or near completion.
• Collect dated photographs showing the condition on the purchase date.
• Identify whether the defects affected only one part of the building or the dwelling as a whole.
• Work out whether the remedial works were repairs and renovation, or whether demolition and reconstruction were required.
• Check whether essential facilities such as cooking, washing, sleeping and safe access were realistically available at completion.
• Review the SDLT return and the filing date, and consider whether any amendment or repayment route remains open.
• Compare the facts carefully against the reasoning in Mudan rather than relying on older, more generous assumptions about “uninhabitable” properties.

Conclusion

A subsiding extension with cracking, leaks and mould is not enough by itself to guarantee an SDLT refund. The key question is whether, at completion, the property had ceased to be suitable for use as a dwelling. After Mudan, that is a demanding test. In most cases, extensive repair still points to a dwelling; reconstruction points more strongly the other way.

Legal References Used

• Finance Act 2003
• 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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