Can you reclaim higher rate SDLT if a property was bought for demolition because it was uninhabitable?

Introduction

Buyers sometimes pay residential Stamp Duty Land Tax (SDLT), including the higher rates, on a property that is in very poor condition and intended for demolition or redevelopment. A common question is whether SDLT can later be reclaimed on the basis that the building was not suitable for use as a dwelling at the date of completion.

The answer depends on the legal test in Finance Act 2003. The buyer’s intention to demolish, rebuild or redevelop is not enough on its own. The key issue is the condition of the building at the effective date of the transaction. In recent cases, the courts have made clear that the threshold for showing a property was not suitable for use as a dwelling is now relatively high.

The Question

A buyer purchased a property for redevelopment and paid the higher rates of SDLT. The property was said to be effectively a building plot, with planning permission already in place for demolition and replacement. The question is whether the buyer may have a valid SDLT refund claim on the basis that the existing house was uninhabitable and therefore not residential property for SDLT purposes.

Nick’s Explanation

Nick’s central point was that the SDLT position turns on whether, at completion, the building was “used or suitable for use as a dwelling” within section 116 of the Finance Act 2003.

He explained that a property does not stop being residential merely because it is run down, outdated, vacant, or intended for demolition. The legal test focuses on the physical condition of the building at the effective date of the transaction, not on the purchaser’s plans.

In anonymised form, his explanation can be summarised as follows:

• On first appearance, the property may still look like a dwelling.
• Planning permission for demolition and replacement does not by itself mean the existing building was not suitable for use as a dwelling.
• The question is whether the building had lost its identity as a dwelling, or was so defective that it would require reconstruction to make it suitable for use as such.
• Without interior evidence, such as photographs or a surveyor’s report, it is difficult to reach a reliable view.
• If the structure still had the usual features of a house, such as walls and a roof, and retained basic services, HMRC will often still treat it as a dwelling unless there is strong evidence to the contrary.

That reasoning remains broadly correct, but the legal position must now be read in light of the Court of Appeal’s decision in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, which confirms that the threshold for “not suitable for use as a dwelling” is relatively high.

The Law

SDLT applies differently depending on whether the subject matter of the transaction is residential property, non-residential property, or mixed property.

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; and
• land that forms part of the garden or grounds of such a building.

For many disputes of this kind, the issue is whether the building was “suitable for use as a dwelling” on the effective date of the transaction.

The courts have considered this phrase in a number of cases. The more recent authorities show that:

• the test is objective;
• the building’s actual physical state at completion is critical;
• the buyer’s intended use is generally irrelevant to suitability;
• serious disrepair is not necessarily enough; and
• the property must usually have lost the essential characteristics of a dwelling before it falls outside the residential definition.

Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition thresholds in “uninhabitable” or “not suitable for use” cases are now relatively high. A property will not cease to be residential just because it needs extensive renovation, lacks modern facilities, or is commercially unattractive to occupy. The question is whether it has truly ceased to be suitable for use as a dwelling in the statutory sense.

Analysis

To assess whether a refund claim may exist, the position should be worked through in stages.

1. Identify what SDLT treatment was applied

   If the buyer paid residential SDLT, including the higher rates, that suggests the transaction was treated as the purchase of a dwelling. Any reclaim argument would need to show that treatment was wrong at the time of completion.

2. Focus on the effective date of the transaction

   The relevant date is usually completion. The condition of the building before or after that date may be evidentially useful, but the legal test is applied at the effective date.

3. Ignore redevelopment intention as a deciding factor

   The fact that the buyer was a developer, bought the site as a building plot, or already had planning permission to demolish and rebuild does not determine SDLT status. A house can still be residential property even if everyone intends it to be knocked down immediately afterwards.

4. Examine the building’s physical condition

   The real question is whether the building retained the essential characteristics of a dwelling. Relevant factors may include:

   • whether the structure was intact;
   • whether it had a functioning or repairable roof and walls;
   • whether there were kitchen and bathroom facilities, even if dated or defective;
   • whether utilities were connected or capable of reconnection;
   • whether the building was safe to enter and occupy;
   • whether there was major structural failure, contamination, or danger; and
   • whether the works needed were repair and renovation, or true reconstruction.

5. Apply the current high threshold

   After Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, a taxpayer needs strong facts to show that the building was not suitable for use as a dwelling. Mere disrepair, neglect, age, missing fittings, or a need for substantial refurbishment will often not be enough.

6. Consider the evidence available

   A claim will usually stand or fall on evidence. Useful material may include:

   • a surveyor’s report from around completion;
   • dated interior and exterior photographs;
   • engineer’s reports showing structural failure or danger;
   • local authority records, if relevant;
   • contract papers and auction particulars; and
   • evidence showing that reconstruction, rather than refurbishment, was required.

   Without this sort of evidence, HMRC is likely to argue that the property remained a dwelling.

In practical terms, many properties described as “uninhabitable” in estate agency language still count as residential property for SDLT. The legal test is narrower and more demanding than ordinary language suggests.

Outcome

A refund claim is not ruled out, but it cannot be based simply on the fact that the buyer intended to demolish the house or that planning permission for replacement was already in place.

The buyer would need to show that, at completion, the building was not suitable for use as a dwelling within section 116 of the Finance Act 2003. Given the current case law, especially Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, that is now a relatively demanding test. If the building still retained the basic character of a house, HMRC is likely to maintain that residential SDLT, and where applicable the higher rates, were correctly charged.

Practical Steps

1. Collect contemporaneous evidence

   Gather photographs, surveys, structural reports, auction particulars and any documents showing the building’s condition at completion.

2. Review whether the defects were truly fundamental

   Ask whether the property needed repair and renovation, or whether it had deteriorated so far that it had effectively lost its identity as a dwelling.

3. Check the SDLT return that was filed

   Confirm exactly what treatment was adopted and whether the issue is residential status, mixed-use treatment, or the higher rates.

4. Compare the facts against the current authorities

   Any assessment should be made in light of the modern case law, especially the Court of Appeal’s guidance in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

5. Take advice before submitting an amendment or reclaim

   These cases are highly fact-sensitive. A weak claim may be rejected if the evidence does not clearly show that the statutory threshold was crossed.

Conclusion

Buying a property for demolition does not by itself create an SDLT refund claim. The decisive question is whether the building was suitable for use as a dwelling at completion. Since Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the bar for proving that a property was not suitable for use as a dwelling is relatively high, so strong contemporaneous evidence is essential.

Legal References Used

• Finance Act 2003, section 116
• Mudan v HMRC [2023] UKUT 00075 (TCC)
• 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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