Can you claim non-residential SDLT if a property was unsafe or under a prohibition order?

Introduction

Many buyers ask whether a badly damaged or unsafe property can be treated as non-residential for Stamp Duty Land Tax purposes. The issue usually arises where the building needed major works, had serious hazards, or was later subject to local authority action such as a prohibition order.

The key legal question is whether, on the effective date of the transaction, the property was “suitable for use as a dwelling”. That test has become much harder to satisfy in recent case law. In particular, the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A company bought a residential property that had been used as a house in multiple occupation. The buyer says the building was in a very poor and unsafe condition at completion. One occupier was still living in part of the property, but the buyer believed the property should not have been occupied. After purchase, the local authority inspected and later made a prohibition order, with supporting correspondence explaining that the condition issues pre-dated the purchase.

The practical question is whether those facts are enough to support an SDLT refund claim on the basis that the property was not suitable for use as a dwelling at the date of purchase.

Nick’s Explanation

Nick’s view was cautious. He explained that recent case law had significantly narrowed the scope for “uninhabitable property” claims and that it would often be sensible to gather evidence first and then consider timing carefully.

In anonymised form, his position was:

There has been a recent change in case law on what counts as “suitable for use as a dwelling”. HMRC are relying heavily on the Mudan decision. For cases close to the four-year deadline, a protective claim may need to be considered. For other cases, it may be better to collect the evidence and monitor developments before proceeding.

He also distinguished between stronger and weaker cases, indicating that only a smaller group would realistically meet the post-Mudan standard, namely cases where the property was genuinely too dangerous to live in and required more than ordinary renovation or repair.

The Law

SDLT is charged under the Finance Act 2003. Whether property is residential or non-residential matters because the tax rates are different.

The starting point is section 116 of the Finance Act 2003. Broadly, property is residential property if it consists of:

• a building that is used or suitable for use as a dwelling, or
• land that forms part of the garden or grounds of such a building.

In disputes about derelict or damaged homes, the central issue is usually whether the building was still “suitable for use as a dwelling” at the effective date of the transaction.

That test is applied to the property’s actual physical condition at the relevant date. The fact that a buyer intended to refurbish it, or that substantial works were needed, does not by itself make the property non-residential.

The courts have now made clear that the threshold is high. A property does not cease to be residential merely because it is run down, in disrepair, unpleasant, or in need of extensive works. The question is whether it has truly crossed the line so that it is no longer suitable for use as a dwelling at all.

That approach is now strongly reinforced by Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Analysis

The facts described here contain some points that may initially look helpful to a taxpayer, but each needs to be tested carefully against the legal standard.

First, the property was bought as a building that had been used for residential occupation. That matters because the property starts from a residential character unless its condition was so serious that it had ceased to be suitable for use as a dwelling.

Second, there was still an occupier in one room at or around the time of purchase. That does not automatically defeat a claim, but it is a difficult fact for the taxpayer. Actual occupation tends to support HMRC’s argument that at least part of the building remained capable of residential use.

Third, the buyer says the property was unsafe and that the local authority later agreed. That is relevant evidence, but timing is critical. The SDLT test is applied at the effective date of the transaction, not simply by looking at what happened later. A prohibition order made after completion may support the factual picture, but it is not conclusive on the SDLT issue.

Fourth, a local authority prohibition order and covering letter may show that serious housing hazards existed. Even so, housing law and SDLT law are not identical. A building can fail housing standards, or be subject to enforcement action, without necessarily being treated as non-residential for SDLT purposes. The tribunal and appellate courts have repeatedly focused on the narrower statutory question: was the building still suitable for use as a dwelling?

Fifth, the condition must usually be extreme. After Mudan, the court’s approach means that many properties once thought arguable will no longer qualify. Serious disrepair, danger, missing facilities, damp, poor layout, outdated condition, or the need for major refurbishment may still fall short unless the property had truly lost the essential character of a dwelling.

On these facts, the strongest points for the taxpayer would be:

• evidence of serious safety hazards existing at completion;
• formal local authority action shortly after purchase;
• documentary confirmation that the poor condition pre-dated the purchase; and
• evidence that the works required went beyond ordinary repair or renovation.

The weaker points would be:

• the building was plainly designed and used as residential accommodation;
• there was actual occupation of part of the property;
• the prohibition order came after completion rather than before; and
• post-Mudan, the courts require a very high level of unsuitability.

That means a prohibition order is helpful evidence, but not a guaranteed route to non-residential treatment. The buyer would need to show that, at completion, the property was not merely dangerous, defective, or substandard, but had crossed the legal threshold of no longer being suitable for use as a dwelling.

Outcome

A buyer in this situation should not assume that an SDLT refund claim will succeed simply because the property was unsafe or because the council later imposed a prohibition order.

Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the threshold for showing that a property was not suitable for use as a dwelling is relatively high. Where any part of the building was still occupied, and where the property still retained the basic character of residential accommodation, the claim is likely to be difficult.

In short, this may be an arguable case on its facts, but it is not a straightforward one, and post-Mudan many similar claims will fail.

Practical Steps

If you are assessing a possible claim, the most useful steps are:

• identify the effective date of the transaction and work from the property’s condition on that exact date;
• collect photographs, survey reports, builder reports, valuation evidence, and any environmental or safety reports that existed at or close to completion;
• obtain the full prohibition order, inspection notes, and any covering letter from the local authority;
• separate evidence of pre-existing condition from anything that happened after purchase;
• consider whether there was actual occupation and what parts of the building were occupied;
• analyse whether the defects went beyond disrepair and amounted to a real loss of suitability for use as a dwelling;
• check the four-year amendment or repayment time limit carefully; and
• if the deadline is near, consider whether a protective claim is needed so that the time limit is not missed.

Conclusion

A severely damaged or unsafe property is not automatically non-residential for SDLT. The legal test is whether it was suitable for use as a dwelling at the transaction date, and that is now a demanding test. A later prohibition order may help, but it will not by itself decide the issue. After Mudan, only the strongest condition cases are likely to succeed.

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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