Is SDLT non-residential on a derelict bungalow, or is no SDLT due?

Introduction

People often ask whether a severely damaged or derelict home can be treated as non-residential for Stamp Duty Land Tax (SDLT). The issue usually arises where a building has serious structural defects, a partial roof collapse, asbestos, or no working utilities. The buyer wants to know whether the property is still treated as “residential property” for SDLT, whether non-residential rates apply, or whether no SDLT is payable at all.

The short answer is that there is no general “zero SDLT because the property is derelict” rule. SDLT is still charged on a land transaction unless a specific relief or exemption applies. The real question is whether, at the effective date of the transaction, the building is suitable for use as a dwelling. If it is not, the purchase may fall outside the residential SDLT rules and instead be charged at non-residential rates.

The Question

A buyer is purchasing a detached bungalow in very poor condition. The building has been described as derelict and removed from the council tax list. It reportedly has major subsidence, a damaged roof structure with part of the roof collapsed, asbestos in various parts of the building, and disconnected electricity and water services.

The buyer wants to know whether the purchase would be taxed at non-residential SDLT rates, or whether no SDLT would be payable.

Nick’s Explanation

Nick’s key point was that the SDLT result depends on whether the property is truly unsuitable for use as a dwelling at the date of purchase. In anonymised form, his explanation was:

“The key question is whether the property is truly unsuitable for use as a dwelling. If it is, your conveyancing solicitor should consider whether it should be treated as non-residential for SDLT purposes.”

He also explained that, on an illustrative purchase price of £500,000, the standard residential SDLT would be £15,000, while the non-residential SDLT would be £14,500. If the buyer would otherwise be subject to the higher rates for additional dwellings, the difference could be much more significant, because the higher residential rates would produce a much larger SDLT bill.

That reasoning is broadly right in principle, but the threshold for showing that a building is 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 Law

SDLT is charged under the Finance Act 2003. The rate depends on the nature of the property being acquired.

For these purposes, the main distinction is between:

• residential property, and
• non-residential or mixed property.

Residential property is defined in Finance Act 2003, section 116. Broadly, this 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 suitable for use as a dwelling at the effective date of the transaction, residential SDLT rates apply. If it is not suitable for use as a dwelling, the transaction may instead be taxed at non-residential rates.

The case law has shown that this is an objective test based on the condition of the property at the relevant date. It is not decided simply by:

• whether the property is habitable in an everyday sense,
• whether mortgage lenders would lend on it,
• whether it has been removed from the council tax list, or
• whether substantial repairs are needed.

Those facts may be relevant evidence, but they are not conclusive.

In uninhabitable or not suitable for use cases, the condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. That decision reinforces that serious disrepair does not automatically stop a building from being “suitable for use as a dwelling” for SDLT purposes.

Analysis

The buyer’s facts point towards a building in very poor condition, but each point needs to be considered carefully.

First, removal from the council tax register does not by itself decide the SDLT treatment. Council tax and SDLT use different statutory tests. A property can be deleted from the council tax list and still be treated as residential property for SDLT.

Second, disconnected utilities are relevant but not decisive. A temporary lack of electricity or water does not always mean a building has ceased to be suitable for use as a dwelling. The question is whether the building, viewed realistically and objectively, remains a dwelling in substance or whether its condition has crossed the line into something else.

Third, major structural problems matter. Significant subsidence and a partially collapsed roof are stronger indicators that the property may no longer be suitable for use as a dwelling. If the building cannot safely be occupied without major structural works, that can support non-residential treatment. But after Mudan, the courts have made clear that the threshold is demanding. The fact that extensive repair works are needed is not enough on its own.

Fourth, asbestos may also be relevant, especially if it creates a serious health and safety risk that prevents normal occupation. But asbestos in itself does not automatically mean the property is unsuitable for use as a dwelling. Much depends on the extent, location and practical impact.

So the legal analysis is not simply “derelict equals non-residential”. The correct approach is:

1. Identify the condition of the building at completion.
2. Assess whether, objectively, it was suitable for use as a dwelling on that date.
3. Use evidence such as surveys, structural reports, photographs, utility information and asbestos reports.
4. Avoid relying on labels such as “derelict” or “uninhabitable” unless the underlying evidence supports them.

If the evidence shows the building had ceased to be suitable for use as a dwelling, non-residential SDLT rates may apply. If the evidence falls short of that threshold, residential SDLT rates apply.

There is also no general rule that SDLT is reduced to nil merely because a building is derelict. SDLT is still calculated by reference to the chargeable consideration and the correct rate table. Non-residential rates can produce a lower figure than residential rates, but that is not the same as saying no SDLT is due.

Using the illustrative figures given for a £500,000 purchase price:

• standard residential SDLT: £15,000
• non-residential SDLT: £14,500
• higher residential rates for an additional dwelling: £40,000

That shows why the classification question can matter, especially for buyers who would otherwise pay the higher residential rates.

Outcome

A severely damaged bungalow is not automatically taxed at non-residential SDLT rates, and it does not automatically attract zero SDLT.

The practical conclusion is this: if the building was genuinely not suitable for use as a dwelling at the effective date of the purchase, non-residential SDLT treatment may be available. But the threshold is now relatively high, especially after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Serious disrepair, even extensive disrepair, is not always enough.

Practical Steps

If you are buying a property in this condition, take these steps before the SDLT return is filed:

1. Obtain a full building survey or structural engineer’s report addressing the condition at the date of purchase.
2. Gather dated photographs showing the actual state of the building, inside and out.
3. Keep evidence about disconnected services, but do not rely on that point alone.
4. Obtain any asbestos reports, dangerous structure notices, insurance evidence or local authority records that help show the condition of the building.
5. Ask your conveyancer to consider the SDLT classification specifically, rather than assuming the property is residential because it was once lived in.
6. Make sure the analysis focuses on “suitable for use as a dwelling” under Finance Act 2003, section 116, not on council tax status or ordinary notions of habitability.
7. If the position is arguable, ensure the evidence is strong enough to support the filing position in case HMRC later asks questions.

Conclusion

A derelict bungalow may qualify for non-residential SDLT treatment, but only if its condition means it was not suitable for use as a dwelling at the completion date. There is no automatic “zero SDLT” rule for derelict property. Because the legal threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the answer depends heavily on the evidence.

Legal References Used

• Finance Act 2003, section 116
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
• HMRC guidance on SDLT non-residential and mixed rates
• HMRC guidance on SDLT higher rates for additional dwellings

This page was last updated on 22 March 2026.

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