Uninhabitable Property and SDLT: Mudan v HMRC Raises the Threshold
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Can you still claim SDLT back if a property was uninhabitable when you bought it?
Introduction
Many buyers ask whether they can reclaim Stamp Duty Land Tax (SDLT) if the property they bought was in such poor condition that it was not suitable to be used as a dwelling at the effective date of purchase. This matters because a property that is genuinely not suitable for use as a dwelling may be taxed at non-residential rates rather than residential rates, which can also affect the 3% higher rates surcharge.
The difficulty is that the legal test has become much stricter. In particular, the condition threshold for an “uninhabitable” or “not suitable for use” argument is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
The Question
A buyer purchased one or more residential properties and paid SDLT on the basis that they were dwellings. The buyer later asked whether a refund might be available because, at the date of purchase, the properties were in very poor condition and may have been unsafe to occupy. The question is whether those facts are enough to treat the properties as not suitable for use as dwellings, so that non-residential SDLT rates should have applied instead.
Nick’s Explanation
Nick’s explanation can be summarised in two parts.
First, he noted that where a property is truly “not suitable for use as a dwelling”, SDLT may be charged at non-residential rates. If higher residential rates were paid, that can mean there has been an overpayment.
Second, he explained that the legal position has tightened. In anonymised form, his point was that:
“Up until 1 October 2024, a property could be treated as not suitable for use as a dwelling if it was too dangerous to live in and needed more than simple renovation or repair. Since then, the case law has narrowed the test. For a property to qualify now, it must have fundamental defects that cannot be repaired.”
He also indicated that, on the earlier understanding of the law, photographs of the properties suggested they were dangerous to live in and required more than ordinary repair works. But he recognised that the modern appellate authorities have made these claims much harder to establish.
The Law
The relevant SDLT rules are found in the Finance Act 2003. SDLT treatment depends on whether the subject matter of the transaction is residential property, non-residential property, or mixed property.
For these purposes, a building is generally 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. If a building is not suitable for use as a dwelling at the effective date of the transaction, the buyer may argue that residential rates should not apply.
The phrase “suitable for use as a dwelling” has been considered in a line of cases. Earlier decisions sometimes allowed taxpayers to succeed where a property was in a dangerous state and required substantial works before occupation. However, later appellate decisions have narrowed that approach.
The key current authority is Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Following that decision, the threshold is relatively high. Serious disrepair, lack of modern facilities, or the need for extensive renovation will not necessarily be enough. The focus is now much more firmly on whether the property has fundamental defects such that it is not suitable for use as a dwelling in the relevant legal sense.
Analysis
The analysis usually proceeds in the following steps.
Identify the effective date of the transaction.
Suitability is tested at the effective date for SDLT purposes, usually completion. The property’s condition before or after that date may provide evidence, but the legal question is its condition at the relevant time.
Examine the actual condition of the property at that date.
Useful evidence includes survey reports, photographs, contractor quotations, mortgage valuation comments, environmental or structural reports, and any evidence that occupation was impossible or unlawful.
Distinguish between disrepair and true unsuitability.
A property may be unattractive, unsafe in some respects, stripped out, damp, lacking kitchen units, or in need of major renovation. Even so, that does not automatically mean it was not suitable for use as a dwelling. The courts now require more than serious neglect or substantial repair needs.
Ask whether there were fundamental defects.
After Mudan, the threshold is relatively high. The question is not simply whether a reasonable person would move in immediately, or whether works were needed before comfortable occupation. The issue is whether the property had defects going to the essence of its character as a dwelling.
Consider whether the defects were remediable.
Nick’s summary reflects the modern difficulty: claims are much weaker where the building could be made habitable by repair, replacement, reinstatement, or renovation, even if those works were extensive and expensive. The current approach is much less favourable to taxpayers where the problem is severe disrepair rather than something more fundamental.
Check whether higher rates were charged only because the property was treated as residential.
If the property was correctly non-residential, that may affect both the basic SDLT rate structure and whether the 3% surcharge should have applied.
On facts where a property was dangerous and required major works, there may once have been a stronger basis for a reclaim argument. But under the current law, many such cases will no longer succeed unless the defects cross the much higher threshold confirmed by the appellate courts.
Outcome
The practical conclusion is that an SDLT reclaim based on a property being uninhabitable is now harder to win than it was under earlier case law. A buyer may still have a possible claim if the property was genuinely not suitable for use as a dwelling at completion, but the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.
If the property merely needed extensive repairs, refurbishment, reinstatement of services, or modernisation, that may no longer be enough. A successful claim is now more likely to require evidence of fundamental defects going beyond ordinary, even serious, disrepair.
Practical Steps
Gather contemporaneous evidence from the purchase date.
This includes surveys, photographs, lender comments, contractor reports, insurance documents, and any evidence showing the property could not realistically function as a dwelling at completion.
Review the SDLT return and calculation.
Check whether residential rates and the 3% surcharge were applied, and on what basis.
Analyse the defects carefully.
Separate issues of inconvenience, poor condition, or expensive works from defects that might properly be described as fundamental in light of Mudan.
Consider the timing of any amendment or reclaim.
SDLT claims are subject to time limits, and the correct route may depend on whether the return can still be amended or whether another form of claim is needed.
Take advice based on the current authorities.
Because the law has moved against taxpayers in this area, older guidance or older tribunal decisions may no longer be a safe basis for a claim.
If a relevant appeal or further authority is pending, monitor developments.
Where a case turns on the boundary between severe disrepair and true unsuitability, later appellate guidance may affect whether a claim is worth pursuing or preserving.
Conclusion
A property is not treated as non-residential for SDLT simply because it was in very bad condition. The modern test is stricter, and many “uninhabitable property” arguments now fail unless the buyer can show fundamental defects meeting the high threshold confirmed in Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Anyone considering a reclaim should assess the evidence against that current legal standard, not against the more generous approach found in some earlier cases.
Legal References Used
- Finance Act 2003
- 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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