Can you claim non-residential SDLT because a property was uninhabitable?

Introduction

Many buyers ask whether they can reclaim Stamp Duty Land Tax (SDLT) on the basis that a property was not suitable for use as a dwelling when they bought it. This issue usually arises where the building was in poor condition, could not lawfully be let, needed major renovation, or was empty and unsafe.

The difficulty is that the legal test has become much stricter. A property does not become non-residential for SDLT purposes simply because it needs expensive works, has a poor EPC rating, lacks a licence, or cannot presently be rented out. In an uninhabitable or not suitable for use case, the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

The Question

A buyer acquired a former multi-occupancy residential property through a company. The buyer said the property had not been habitable since the last occupier left, was currently unlicensable in its existing state, had a very poor EPC rating, and was intended to be converted, extended and extensively renovated at significant cost. The buyer did not demolish the building and did not intend to do so.

The practical question was whether those facts were enough to support an SDLT refund claim on the footing that the property was unsuitable for use as a dwelling at the effective date of the transaction, so that it should be treated as non-residential rather than residential.

Nick’s Explanation

Nick explained that HMRC’s approach to these claims had tightened significantly after the court decisions in this area. In anonymised form, his point was:

“Before the change in the case law, HMRC had sometimes accepted that a property was unsuitable for use as a dwelling if it needed more than ordinary repairs or was too dangerous to live in. The position is now much stricter. The issue is whether there were fundamental defects at the date of purchase such that the building was not suitable for use as a dwelling.”

He also advised that where the evidence only showed serious disrepair, planned renovation, licensing problems, or a poor energy rating, the better course might be to review matters carefully before pursuing a claim.

That reasoning is consistent with the modern authorities. The focus is not on the buyer’s plans, the scale of refurbishment, or whether the property was attractive to occupy. The focus is on the condition of the building at the effective date of the transaction and whether, applying the legal test, it was suitable for use as a dwelling.

The Law

SDLT is charged under the Finance Act 2003. Whether higher residential rates, standard residential rates, or non-residential rates apply depends on the nature of the subject matter acquired.

For this type of case, the key question is whether the property was “residential property” at the effective date of the transaction. Broadly, a building used or suitable for use as a dwelling, or in the process of being constructed or adapted for such use, will usually be residential property for SDLT purposes.

The case law has developed the meaning of “suitable for use as a dwelling”. The courts have rejected an overly broad approach under which serious disrepair alone could readily convert a dwelling into non-residential property. The test now requires close attention to the actual condition of the building and whether any defects are truly fundamental.

In particular, Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799 confirms that the threshold in uninhabitable or unsuitable-for-use cases is relatively high. The fact that a property is run down, vacant, in need of major works, or not currently lettable will not by itself be enough.

Analysis

Applying those rules step by step:

1. The starting point is to identify what was bought at completion. If the subject matter was a building that had previously been used as residential accommodation and still physically existed as a dwelling, the presumption will often be that it remained residential property unless the defects were sufficiently serious.

2. The buyer’s future intention is usually not decisive. A plan to convert, extend, reconfigure or renovate the property does not itself make the property non-residential. The SDLT analysis looks at the property as it stood at the effective date of the transaction.

3. The fact that the property was empty after the last occupier left does not by itself assist. A vacant dwelling can still plainly be suitable for use as a dwelling.

4. The fact that the building was unlicensable as an HMO in its then condition is also not conclusive. HMO licensing rules and SDLT classification are different legal questions. A building may fail licensing requirements yet still be physically suitable for use as a dwelling.

5. A poor EPC rating, including an EPC below the level required for certain lettings, is not usually enough either. Energy efficiency restrictions affect lawful letting in some circumstances, but they do not necessarily show that the building ceased to be a dwelling for SDLT purposes.

6. The scale and cost of planned works can be relevant background, but high expenditure alone does not prove unsuitability. Many dwellings require extensive refurbishment while remaining dwellings in law.

7. The more important question is whether there were fundamental defects at completion. Examples might include structural failure, destruction of essential parts of the building, or other defects so serious that the building could not realistically function as a dwelling at all. Even then, the evidence must be strong and specific.

8. The fact that the buyer did not demolish the building and did not intend to demolish it may cut against any suggestion that the building was beyond repair. If the plan was to renovate and convert the existing structure, that may indicate the building was capable of being repaired rather than fundamentally unusable.

On those facts alone, the case appears difficult. The evidence described points strongly to disrepair, regulatory and licensing issues, and substantial refurbishment needs. But after Mudan, that is not the same as proving that the property was not suitable for use as a dwelling for SDLT purposes.

Outcome

The practical conclusion is that a claim of this kind is unlikely to succeed unless there is clear evidence of fundamental defects existing at the purchase date. A property will not usually be treated as non-residential merely because:

• it had been vacant for some time;
• it could not lawfully be let in its present state;
• it lacked or had lost an HMO licence;
• it had a poor EPC rating;
• it required extensive renovation; or
• the buyer intended major conversion works.

In an uninhabitable or not suitable for use case, the condition threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

Practical Steps

If you are assessing whether a property might have been non-residential for SDLT purposes, the sensible next steps are:

1. Gather evidence showing the property’s exact condition at the effective date of the transaction, not months later after works began.

2. Obtain contemporaneous photographs, videos, surveys, contractor reports, mortgage valuation material, and any local authority notices.

3. Separate out evidence of legal or regulatory restrictions from evidence of physical unsuitability. They are not the same.

4. Identify whether any alleged defects were truly fundamental, rather than repair items however expensive.

5. Review whether the building still had the basic character of a dwelling at completion.

6. Check the SDLT filing date and amendment or repayment time limits under the Finance Act 2003.

7. Take advice based on the post-Mudan position before submitting a reclaim, because weak claims are likely to be challenged.

Conclusion

A property is not automatically non-residential for SDLT just because it was in poor condition or needed major refurbishment. The legal test is now demanding. Unless the evidence shows fundamental defects making the building genuinely unsuitable for use as a dwelling at the purchase date, a refund claim is likely to face serious difficulty.

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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