Can a property with a broken bathroom be treated as non-residential for SDLT?

Introduction

Buyers often ask whether serious disrepair in a house or flat can reduce Stamp Duty Land Tax (SDLT). A common example is a property with a bathroom that does not work, uncertain plumbing, or other defects that make the building hard to live in on day one.

The key issue is whether the property is still “residential property” for SDLT purposes at the effective date of the transaction, usually completion. That question matters because residential and non-residential SDLT rates are different. In some cases, buyers have argued that a dwelling was not suitable for use as a dwelling and should therefore be taxed as non-residential property instead.

That argument is now much harder to run successfully. In particular, the threshold for showing that a property was not suitable for use as a dwelling is relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer agreed to purchase a probate property as a family home for about £1.275 million. Before exchange and completion, the buyer became concerned because the bathroom appeared totally unusable and the condition of the plumbing was unknown. The buyer wanted to know whether that level of disrepair could affect the SDLT position.

More specifically, the practical question was whether the property could be treated as non-residential for SDLT because it might be uninhabitable, or whether the buyer should expect to pay residential SDLT and only consider a later reclaim if the facts were strong enough.

Nick’s Explanation

Nick’s response was that more facts were needed before any view could be formed. In particular, he focused on points that often matter in SDLT analysis:

• whether the purchase was by an owner-occupier or an investor;
• whether contracts had already been exchanged;
• the timing of exchange; and
• the purchase price.

He explained that, broadly, there are two possible approaches in this kind of case:

• self-assess the property as non-residential on the SDLT return at the time of purchase, which carries risk; or
• pay SDLT on the normal residential basis and then consider whether there is any basis for a reclaim.

Nick also made the important point that claims based on a property being uninhabitable are currently difficult. In anonymised form, his view was that there may be scope to keep a case under review where the property’s general condition and hazardous defects arguably make it unsuitable for use as a dwelling, but that this area is uncertain and fact-sensitive.

Once the buyer confirmed that the purchase was for a family home, with a mortgage in place and the transaction progressing in the usual way, Nick set out the potential SDLT difference if a non-residential treatment were ever available. On the figures provided, the difference between residential and non-residential SDLT was significant, but the availability of that treatment would depend on whether the property truly failed the legal test at the relevant date.

The Law

SDLT is charged under the Finance Act 2003. The starting point is that a building is “residential property” if it is used as a dwelling or is suitable for use as a dwelling, or is in the process of being constructed or adapted for such use.

The statutory definition is found in Schedule 4ZA to the Finance Act 2003, and similar dwelling concepts are used elsewhere in the SDLT code. In practice, the central dispute in many “uninhabitable property” cases is whether the building was suitable for use as a dwelling at the effective date of the transaction.

HMRC has long taken a relatively strict approach. The courts and tribunals have also considered the issue in a line of cases, including:

• P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC);
• Fish Homes Ltd v HMRC [2020] UKUT 183 (TCC);
• Mudan v HMRC, culminating in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The current position is that not every defect, even a serious one, will prevent a property from being residential property for SDLT. The question is not whether the property is attractive, modern, mortgageable on the best terms, or capable of immediate comfortable occupation without works. The question is whether, viewed realistically, it is suitable for use as a dwelling.

After Mudan, the condition threshold in “not suitable for use” cases is relatively high. A buyer usually needs more than disrepair, outdated facilities, or the need for renovation. The defects generally need to be so serious that the property cannot properly be regarded as suitable for residential use at the effective date.

Analysis

In a case where the bathroom is unusable and the plumbing is uncertain, the legal analysis usually works as follows.

First, identify the relevant date. For SDLT, this is normally completion, unless substantial performance applies earlier. The property’s condition at that date is what matters.

Second, ask whether the building still has the character of a dwelling. If it is a house or flat designed and arranged for normal residential occupation, that points strongly toward residential treatment.

Third, consider the actual defects. A broken bathroom is relevant, and so are plumbing failures, water damage, unsafe electrics, structural instability, contamination, or other hazards. But one defective room, even an important one, does not automatically mean the whole property is unsuitable for use as a dwelling.

Fourth, look at the severity of the problem. If the issue is that sanitary fittings are old, disconnected, leaking, or in need of replacement, HMRC and the courts may still view the property as residential. If, however, the defects are so extensive that basic residential occupation is not realistically possible without major works, the argument becomes stronger.

Fifth, consider the wider evidence. Photos alone may not be enough. The strongest cases usually involve survey reports, contractor evidence, environmental or safety reports, and detailed contemporaneous material showing the true condition at the effective date.

Sixth, consider the buyer’s intended use, but do not overstate its importance. The fact that the purchase is for a family home does not decide the SDLT classification by itself. However, where a buyer is plainly acquiring a house as a home and the property remains recognisably a dwelling, that often fits naturally with residential treatment.

Applying those points here, a non-functioning bathroom and uncertain plumbing raise a legitimate question, but they do not by themselves clearly establish that the property is non-residential for SDLT. Much would depend on whether the lack of facilities was temporary and repairable, or whether the defects were part of a broader pattern of hazardous and severe disrepair.

That is why Nick identified two practical routes: either take the more aggressive position of filing on a non-residential basis from the outset, or pay residential SDLT and only consider a reclaim if stronger evidence later supports the argument. The first route carries obvious enquiry and penalty risk if the analysis is wrong. The second route is usually more cautious.

Outcome

A property with a broken bathroom is not automatically non-residential for SDLT.

In most cases, a house bought as a home will still be treated as residential property unless the defects are severe enough to show that it was not suitable for use as a dwelling at the relevant date. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, that threshold is now relatively high.

So, where the only known facts are an unusable bathroom and uncertain plumbing, the safer view is usually that residential SDLT remains payable unless much stronger evidence shows the property truly crossed the line into being unsuitable for use as a dwelling.

Practical Steps

If you are assessing this issue on a live purchase, the sensible next steps are:

• confirm the exact condition of the property at exchange and completion;
• obtain a survey or specialist report dealing specifically with habitability and safety issues;
• gather dated photographs and any contractor opinions;
• identify whether the defects affect only one facility, such as a bathroom, or the whole dwelling;
• check whether the property still has functioning kitchen, water, drainage, electricity and basic living accommodation;
• compare the potential SDLT saving with the risk of HMRC challenge, interest and penalties;
• if filing on a residential basis, keep all evidence in case a later reclaim becomes arguable within the applicable time limit.

Where the facts are borderline, the quality of the evidence is often as important as the defect itself.

Conclusion

If a property has a non-working bathroom, that may be relevant to SDLT, but it does not by itself make the property non-residential. The legal test is whether the property was suitable for use as a dwelling at the effective date, and that is now a demanding test. After Mudan, only genuinely serious cases of disrepair are likely to succeed.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 4ZA
• P N Bewley Ltd v HMRC [2019] UKFTT 65 (TC)
• Fish Homes Ltd v HMRC [2020] UKUT 183 (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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