Can you reclaim SDLT if a property was uninhabitable at purchase and financed through an Islamic home purchase plan?

Introduction

Many buyers ask whether they can reclaim Stamp Duty Land Tax (SDLT) if the property they bought was not suitable for use as a dwelling at the effective date of the transaction. A related concern is whether the position changes if the purchase was funded through an Islamic home finance arrangement rather than a standard mortgage.

This issue matters because the SDLT treatment depends on whether the property was genuinely residential at the time of purchase. If it was not suitable for use as a dwelling, different SDLT rules may apply. However, the legal threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer purchased a property using finance provided under an Islamic home purchase plan. Around the time of completion, the property was said to be in poor condition and there may be photographs, surveys and other evidence showing that it was not fit to be lived in.

The buyer wants to know whether they may have a valid SDLT reclaim on the basis that the property was uninhabitable, and whether the use of this type of finance creates extra difficulty.

Nick’s Explanation

Nick’s core view was that the claim would depend heavily on the evidence of the property’s condition at the time of purchase. In substance, his explanation was that the buyer should gather “pictures, surveys, and any other evidence to show the property condition around the time of purchase” so the case can be assessed properly.

He also noted that finance through an Islamic bank can “complicate things a little”, but that claims of this kind can still succeed. The important point is that the funding structure does not automatically prevent a reclaim. The real issue remains whether the property was, in law, unsuitable for use as a dwelling on the effective date of the transaction and whether the SDLT filing position can be corrected.

The Law

SDLT is charged under the Finance Act 2003. Whether property counts as “residential property” is important because residential and non-residential transactions are taxed differently.

Under section 116 of the Finance Act 2003, residential property 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. If a building is not suitable for use as a dwelling at the effective date of the transaction, it may fall outside the residential definition.

HMRC and the courts have considered many disputes about whether a property was uninhabitable. The modern approach is strict. Disrepair, age, poor decorative condition, missing items, or the need for renovation will not usually be enough. The condition must be serious enough that the building was not suitable for use as a dwelling at the relevant time.

The Court of Appeal in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 confirmed that the threshold is relatively high. A property does not cease to be residential simply because it needs substantial works, is in bad condition, or cannot immediately be occupied without repair. The question is whether, viewed realistically at completion, it remained suitable for use as a dwelling.

Where Islamic finance is used, SDLT can involve special rules in Part 4 of the Finance Act 2003 dealing with alternative property finance. Depending on the structure, the tax analysis can be more technical because the legal form may involve more than one step or a financial institution acquiring and then transferring interests. Even so, the underlying question about the nature of the property can still arise.

Analysis

The starting point is the date that matters for SDLT: the effective date of the transaction, usually completion. The condition of the property must be judged at that point, not by reference to what happened months later after strip-out works or further deterioration.

Step one is to identify what was wrong with the property at completion. Useful evidence may include:

• a survey or valuation prepared close to completion;
• dated photographs or videos;
• contract papers or replies to enquiries;
• builder or engineer reports;
• evidence that essential services or facilities were absent or unsafe.

Step two is to test whether those defects go beyond ordinary disrepair. A property may still be “suitable for use as a dwelling” even if it has serious defects, damp, outdated fittings, a defective kitchen or bathroom, or requires major refurbishment. After Mudan, the bar is high. The condition usually needs to show something more fundamental, such as the absence of basic living functionality or a state making residential occupation unrealistic in any ordinary sense.

Step three is to consider the SDLT structure where Islamic finance was used. In many home purchase plan arrangements, the lender’s role can make the transaction documents more complex than a standard mortgage purchase. That does not necessarily defeat a reclaim, but it means the SDLT return, transaction steps, and chargeable interest acquired need to be checked carefully against the alternative property finance provisions.

Step four is to review what SDLT was actually paid and on what basis. If the return treated the property as residential, but the facts and law support non-residential treatment, an amendment or repayment claim may be possible, subject to time limits and procedural requirements.

Step five is to assess litigation risk realistically. HMRC often resists uninhabitable property claims. In light of Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, a buyer should not assume that poor condition alone is enough. The evidence must show that the dwelling was not merely unattractive or inconvenient to occupy, but legally and factually unsuitable for use as a dwelling at the effective date.

Outcome

A buyer in this position may have a possible SDLT reclaim, but success will depend on strong contemporaneous evidence of the property’s condition and careful analysis of the finance structure.

The use of an Islamic home purchase plan does not automatically block a reclaim. It simply adds technical complexity. The main legal hurdle is proving that the property was not suitable for use as a dwelling when bought. Since Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, that hurdle is relatively high.

Practical Steps

If you are assessing a similar case, the sensible next steps are:

• collect all photographs, videos, surveys and valuation reports from around completion;
• obtain completion statements, SDLT returns and transaction documents;
• identify the exact Islamic finance structure used and whether the transaction fell within the alternative property finance rules;
• prepare a clear schedule of the defects present at completion, focusing on why the property was allegedly unsuitable for use as a dwelling;
• compare the facts carefully with the current case law, especially Mudan;
• check whether any amendment or repayment claim is still within time.

Readers should be careful not to rely only on estate agent descriptions or later renovation invoices. The key evidence is what the property was like at the effective date of the transaction.

Conclusion

An SDLT reclaim for an allegedly uninhabitable property is still possible in principle, including where the purchase used Islamic finance. But the legal test is demanding. The central question is whether the property was truly unsuitable for use as a dwelling at completion, and the condition 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
• Finance Act 2003, section 116
• Finance Act 2003, Part 4 provisions on alternative property finance
• 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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