Is a building being converted into flats non-residential for SDLT if it is off the council tax register?

Introduction

A common SDLT question is whether a building under conversion counts as residential or non-residential at the date of purchase. This often arises where the Valuation Office Agency has removed the building from the council tax list because it is temporarily uninhabitable, and the flats will only be banded once the works are complete and building control has signed them off.

It is easy to assume that if nobody can lawfully live there, or if the property is off the council tax register, the purchase must be non-residential. For SDLT, however, that is not the test. The answer depends mainly on the statutory definition of “residential property” in the Finance Act 2003, the special rule for six or more dwellings, and the current case law on when a building is truly not suitable for use as a dwelling.

The Question

A seller owns a building that is being converted into self-contained flats. During the works, the VOA has removed the building from the council tax register because it is uninhabitable. The flats are incomplete and cannot be occupied until the works are finished and building control sign-off has been obtained. The seller plans to dispose of the property before completion of the conversion and wants to know whether the transaction should be treated as non-residential for SDLT.

Nick’s Explanation

Nick’s core point was that removal from the council tax register does not by itself decide the SDLT treatment. The starting point is section 116 of the Finance Act 2003.

In anonymised form, his explanation was:

“If the property is being sold before completion but the works clearly show adaptation into dwellings, it will almost certainly fall within the residential definition in section 116(1)(a) as being in the process of being constructed or adapted for use as a dwelling.”

He also highlighted an important exception:

“If there are six or more self-contained flats transferred in the same transaction, section 116(7) can override the ordinary residential classification and treat the transaction as non-residential for SDLT purposes.”

On the argument that the building is uninhabitable, Nick referred to the Court of Appeal’s decision in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The effect of that decision is that the threshold for showing a property is not suitable for use as a dwelling is now relatively high. A building does not cease to be residential merely because it is in poor condition, lacks sign-off, or cannot presently be occupied. The question is whether it has effectively lost its identity as a dwelling, or whether it is still a dwelling, or in the process of being constructed or adapted for dwelling use.

The Law

The main charging provision is section 55 of the Finance Act 2003. Broadly:

• Table A applies to residential property.
• Table B applies to non-residential or mixed property.

The key definition is in section 116 Finance Act 2003. Under section 116(1), “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;
• land that forms part of the garden or grounds of such a building; and
• interests or rights that benefit that land.

Property that does not fall within that definition is non-residential.

There is also a special deeming rule in section 116(7). Where six or more dwellings are transferred in a single transaction, or in linked transactions, they are treated as non-residential for SDLT purposes. This is commonly called the six dwellings rule.

On suitability for use as a dwelling, the leading recent authority is Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. The Court of Appeal made clear that the threshold for an uninhabitable argument is now relatively high. A property usually remains residential unless it has lost its identity as a dwelling. Temporary uninhabitability, disrepair, missing facilities, or ongoing works will not automatically make it non-residential.

Analysis

The SDLT analysis should be approached in stages.

First, ignore the council tax position as a deciding factor. Council tax banding and SDLT are different legal regimes with different tests. The fact that the VOA has removed a building from the council tax list may be relevant evidence about its condition, but it does not determine whether the property is residential for SDLT.

Second, ask what is being acquired at the effective date of the transaction. If the subject matter is a building that is being converted into flats, section 116(1)(a) is immediately relevant because it covers not only buildings already suitable for use as dwellings but also buildings “in the process of being constructed or adapted” for that use.

Third, consider whether the building is still within the residential definition even though nobody can occupy it yet. In many conversion cases, the answer will be yes. If the structure is plainly being adapted into dwellings, SDLT law tends to treat it as residential. The lack of final building control sign-off does not, by itself, take it outside section 116.

Fourth, consider whether there is a realistic “not suitable for use as a dwelling” argument. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, this is now difficult unless the facts are extreme. The condition thresholds are relatively high. The building would usually need to be in a state where it has genuinely lost the character of a dwelling or proposed dwellings, for example because of severe structural failure, partial demolition, or conditions making occupation fundamentally impossible in a more than temporary or routine construction sense. A building under ordinary conversion works, even if currently unoccupied and unbanded, may still be residential for SDLT.

Fifth, check whether section 116(7) applies. This is often the decisive point in flat conversion cases. If six or more separate dwellings are transferred in the same transaction, the legislation treats the purchase as non-residential. That treatment does not depend on proving the building is uninhabitable. Instead, it depends on whether what is transferred amounts to six or more dwellings within the statutory rule.

Sixth, look carefully at the factual and legal status of the units at completion. Important questions include:

• How many flats are there intended to be?
• Are they sufficiently identifiable as separate dwellings at the transaction date?
• Is the whole property sold under one title, or are there separate titles or leases?
• Do the plans, permissions and physical layout show six or more self-contained units?

If there are fewer than six dwellings, the transaction will usually remain within the residential regime unless some other non-residential element is present. If there are six or more dwellings, section 116(7) may move the transaction into non-residential rates.

Outcome

The practical answer is that a building being converted into flats is not automatically non-residential for SDLT just because:

• it is off the council tax register;
• it is currently uninhabitable;
• building control has not yet signed off the works; or
• nobody can yet live there.

In most cases, a building under conversion into dwellings will still fall within section 116(1)(a) as residential property because it is in the process of being constructed or adapted for use as dwellings.

The main route to non-residential SDLT treatment in this type of case is often the six dwellings rule in section 116(7), if six or more separate dwellings are transferred. A separate argument based on the property being not suitable for use as a dwelling is now harder to sustain after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Practical Steps

To assess the SDLT position properly, a buyer or seller should gather and review:

• the number of intended flats;
• planning permission and approved plans;
• the stage reached in the conversion at the effective date;
• whether the units are physically identifiable as separate self-contained dwellings;
• the contract, title structure and any leases or proposed leases;
• evidence of the building’s physical condition, including photographs, surveys and contractor reports.

The key questions are:

• Does section 116(1)(a) apply because the building is being adapted for dwelling use?
• Are there six or more dwellings so that section 116(7) applies?
• Is the physical condition so extreme that the building has genuinely lost its identity as a dwelling or dwellings?

Anyone filing an SDLT return on this kind of transaction should make sure the factual analysis is documented carefully, because the classification can materially affect the tax due and any later HMRC enquiry.

Conclusion

Being removed from the council tax register does not, on its own, make a property non-residential for SDLT. A building being converted into flats will often still be residential under section 116 because it is in the process of being adapted for use as dwellings. The strongest basis for non-residential treatment is usually the six dwellings rule if six or more dwellings are transferred. Arguments based on uninhabitability now face a relatively high threshold after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Legal References Used

• Finance Act 2003, section 55
• 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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