Can you reclaim SDLT if a house had to be demolished because it was structurally unsound?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) can be reduced or reclaimed where they bought a property described as a house, but it later turned out to be so defective that it could not safely be lived in and had to be demolished.

The key issue is not whether the buyer later renovated, rebuilt or obtained planning permission. The main legal question is whether, at the effective date of the transaction, the building was “suitable for use as a dwelling” for SDLT purposes. If it was not, the property may have been non-residential or mixed for SDLT rating purposes, which can significantly affect the tax due, especially where the higher residential rates were paid.

This area has become harder for taxpayers following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, which confirms that the threshold for showing a dwelling was not suitable for use is now relatively high.

The Question

A buyer completed the purchase of a property in 2022. The building was in very poor condition at the time of purchase, and renovation works were planned. During the works, the roof was being replaced because it was not structurally sound, and further investigation showed that the walls were also structurally unsound. A structural engineer concluded that the building was not structurally viable and it was demolished. A replacement dwelling has since been built on the same footprint with local authority approval.

The buyer wants to know whether any SDLT relief or refund may be available, particularly because the property was never occupied and has remained uninhabitable.

Nick’s Explanation

Nick’s core point was that a refund may be possible, but the answer depends heavily on what SDLT was originally paid and whether the property can be shown to have been unsuitable for use as a dwelling at the time of purchase.

In anonymised form, his explanation was:

“It is possible that a claim may exist, but more information is needed. If higher rates of SDLT were paid, and it can be shown that the property was not suitable for use as a dwelling because of fundamental defects that were not realistically repairable, the property may instead be treated as non-residential for SDLT purposes. In that case, non-residential rates would apply. If only standard residential rates were paid, there may be little or no saving unless the price was high enough for the non-residential rates to produce a lower figure.”

That is the right starting point. The practical value of any claim usually depends on whether:

• the buyer paid the 3% higher rates for an additional dwelling;
• the property price was high enough for non-residential rates to produce a lower liability than residential rates; and
• there is strong evidence that the building was not suitable for use as a dwelling on completion, not just that it needed extensive works.

The Law

SDLT is charged under the Finance Act 2003. The amount payable depends on whether the subject matter of the transaction is residential property, non-residential property, or mixed property.

For SDLT purposes, a building counts as residential property if it is used or suitable for use as a dwelling, or is in the process of being constructed or adapted for such use. The critical wording appears in section 116 of the Finance Act 2003.

In broad terms:

• if a building is suitable for use as a dwelling at the effective date of the transaction, residential rates apply;
• if it is not suitable for use as a dwelling, it may fall to be taxed at non-residential rates instead;
• if the buyer paid the higher rates for additional dwellings, and the property was not in fact residential property, those higher rates should not have applied.

The issue has been considered in a number of SDLT cases about derelict or damaged properties. Earlier tribunal decisions sometimes gave taxpayers room to argue that severe disrepair meant a property was not suitable for use as a dwelling. However, the Court of Appeal in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 has made clear that the bar is now relatively high.

After Mudan, it is not enough that a property is in bad condition, needs major works, is unpleasant to live in, or is temporarily incapable of lawful occupation. The court’s approach indicates that only serious defects going to the basic nature of the building as a dwelling are likely to take it outside the residential definition. The question is focused on the condition of the property at completion.

Evidence therefore matters greatly. Structural reports, survey findings, photographs, engineer opinions, contractor evidence and contemporaneous documents are often central to the analysis.

Analysis

The position can be analysed in stages.

First, the relevant date is the completion date, not what happened later. The fact that the building was eventually demolished does not by itself prove that it was unsuitable for use as a dwelling when it was bought. Many properties are bought for redevelopment even though they are still dwellings in SDLT terms.

Second, the defects must be fundamental. A failing roof, unsafe walls, serious structural movement, risk of collapse, or a professional conclusion that the building was not structurally viable may support the argument that the property was not suitable for use as a dwelling. But the evidence must show that this condition existed at completion, not merely that it became apparent later when works began.

Third, the fact that the buyer never occupied the building, or that council tax was not charged later, is not decisive for SDLT. Council tax rules and SDLT rules are different. A local authority decision that a property is not habitable for council tax purposes may be useful background evidence, but it does not determine the SDLT classification.

Fourth, planning permission to renovate or rebuild does not itself assist much. A property can still be a dwelling for SDLT purposes even if the buyer intended to carry out very substantial works or replacement works.

Fifth, the amount of tax at stake depends on what was originally paid:

• If the buyer paid the higher residential rates, a successful argument that the property was not suitable for use as a dwelling can produce a substantial refund.
• If the buyer paid only standard residential rates, the saving may be limited or nil unless the purchase price was high enough for non-residential rates to be lower.

Sixth, Mudan makes these cases more difficult than some earlier commentary may suggest. The courts now expect a strong factual basis before concluding that a building was not suitable for use as a dwelling. In an uninhabitable or not suitable for use case, the condition thresholds are now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

On the facts described, the strongest points in favour of a claim would be:

• a survey had already identified structural concerns before works began;
• a structural engineer concluded the building was not structurally viable;
• the building had to be demolished rather than repaired.

The weaker points, or areas needing proof, would be:

• whether the structural condition at completion can be evidenced clearly;
• whether the defects were so serious at that date that the building was not suitable for use as a dwelling, rather than simply requiring major repair;
• whether the original SDLT paid was high enough for a claim to be financially worthwhile.

Outcome

A claim may be possible, but it is not automatic.

The buyer is most likely to have a worthwhile SDLT argument if:

• higher residential rates were paid; and
• there is strong contemporaneous evidence that, on completion, the building had fundamental structural defects making it unsuitable for use as a dwelling.

If only ordinary residential SDLT was paid, there may be little or no refund unless the purchase price was high enough for non-residential rates to produce a lower charge.

Because of Mudan, the condition of the property must usually be shown to have crossed a fairly demanding threshold. Severe disrepair alone is often not enough.

Practical Steps

Anyone assessing this type of SDLT position should gather and review the following:

• the purchase price;
• the SDLT return and SDLT5 certificate;
• whether the 3% higher rates were paid;
• the building survey available at purchase;
• the structural engineer’s report;
• photographs and videos showing the condition at or near completion;
• builder or contractor reports confirming the nature and extent of the defects;
• documents showing why demolition was necessary rather than optional;
• any local authority or valuation records that describe the condition of the building.

The key practical question is: what evidence proves the building was not suitable for use as a dwelling on the completion date?

It is also sensible to calculate both:

• the SDLT actually paid; and
• the SDLT that would have been due if the property had been treated as non-residential.

That comparison shows whether there is a real repayment case and how much is at stake.

Conclusion

If a purchased house was so structurally unsound at completion that it was not suitable for use as a dwelling, SDLT may have been overpaid. But the test is now stricter than many buyers expect, especially after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The outcome will usually depend on strong evidence of fundamental defects existing at the completion date and on whether the SDLT originally paid was higher than the non-residential amount.

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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