A building is residential for Stamp Duty Land Tax if it is used or suitable for use as a dwelling, and needing repairs, even serious ones, does not change that. Following the Court of Appeal’s decision in Mudan, a property only stops being a dwelling where its defects are so fundamental that it has lost the character of a home, such as a building at real risk of collapse or one that can only be demolished.

Why does it make a difference whether a building is a dwelling?

Section 116(1) of the Finance Act 2003 defines residential property as 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, together with its garden or grounds and rights that benefit it. Anything else is non residential property. A purchase that includes any non residential property is taxed at the non residential rates, which for 2026 to 2027 are 0% up to £150,000, 2% on the next £100,000 and 5% above £250,000. The residential rates start at £125,000 and rise to 12% above £1.5 million.

The bigger prize is usually elsewhere. The 5% surcharge for additional dwellings in Schedule 4ZA, the 2% non resident surcharge and the 17% rate for companies buying homes over £500,000 are all tied to residential property, so none of them applies to a purchase taxed as non residential. Schedule 4ZA paragraph 18 uses a near identical test: a building counts as a dwelling if it is used or suitable for use as a single dwelling, or is being constructed or adapted for that use. So a buyer who already owns a home and buys a wreck to renovate will often argue that the wreck is not a dwelling at all.

The same definition also cuts the other way. First time buyers’ relief can only be claimed where the main subject matter is a major interest in a single dwelling (Schedule 6ZA paragraph 1(2)), so a buyer who succeeds in showing a property is not a dwelling cannot also claim that relief.

What did the courts decide in Mudan?

In Mudan v HMRC [2024] UKUT 307 (TCC) the buyers had paid residential rates on a house bought in 2019 and then claimed a repayment through an agent on the basis that it was uninhabitable. At completion the house needed complete rewiring, a new boiler and pipework, and had flooding in the basement, but it had been lived in relatively recently and was structurally sound. The Upper Tribunal held it was suitable for use as a dwelling. The Court of Appeal dismissed the further appeal in [2025] EWCA Civ 799, which HMRC describes as binding precedent confirming its long held view.

The Upper Tribunal set out the approach that now governs these cases:

  • Suitable for use as a dwelling does not mean ready for immediate occupation. The tribunal firmly rejected a test based on how long repairs would take.
  • The focus is on the fundamental characteristics and nature of the building, viewed over a period of time, rather than a snapshot of habitability on the completion date.
  • Previous use as a dwelling is a relevant and often strong indicator.
  • There is a distinction between repairs or renovation, which do not stop a building being a dwelling, and adaptation or alteration needed to turn something into a dwelling.
  • The question is whether the defects mean the building no longer has the characteristics of a dwelling, which is a multi factorial judgement on all the facts.

The tribunal drew much of this from the earlier Upper Tribunal decision in Fiander and Brower v HMRC [2021] UKUT 156 (TCC), a multiple dwellings relief case, and said the guidance applied equally to the residential rates question.

When has a building been found not to be a dwelling?

The leading example of a successful claim is PN Bewley Ltd v HMRC [2019] UKFTT 65 (TC), summarised by the Upper Tribunal in Mudan. A bungalow had been empty for years, had no floorboards, pipework or radiators, and was extensively contaminated with asbestos. The First tier Tribunal found that renovation was not a feasible proposition because the asbestos would be disturbed, the property had to be demolished, and it was therefore not suitable for use as a dwelling.

The Upper Tribunal in Mudan gave being radioactive or at high risk of collapsing as examples of defects fundamental enough to take a building outside the definition. GOV.UK’s guidance on non residential rates uses the same examples, describing non residential property as including property that is not suitable to be lived in and cannot be made suitable.

What does HMRC say will not make a property uninhabitable?

HMRC’s manual at SDLTM00385 states that there is no relief or lower rate for uninhabitable properties, that a very high proportion of repayment claims in this area are wrong, and that the bar is very high. It lists issues that do not make a property unsuitable for use as a dwelling, even where several are present together:

  • temporary removal of a bathroom or kitchen before sale
  • windows, floors, doors or a roof needing substantial repair or replacement
  • a replacement boiler and pipework, or unsafe electrical wiring
  • services that need switching back on
  • pest infestation, damp, plasterboard damage or flood damage
  • the presence of asbestos
  • structural defects that can be repaired

The asbestos point shows how fact specific Bewley was. Asbestos alone is not enough; the deciding factor there was a finding that its extent made renovation unfeasible so that demolition was the only option.

What other evidence does HMRC look at?

SDLTM00380 says the seller does not need to be living there for a building to be in use as a dwelling, and that where the last use was as a dwelling, evidence is needed to support any claim that it is no longer suitable. The buyer’s plans for the building are irrelevant to the used or suitable test. Planning conditions and council tax are factors: if the Valuation Office has deleted the council tax band, that points towards the building not being suitable for use as a dwelling, though it is not conclusive.

The test is applied at the effective date, normally completion (SDLTM00360). Works the buyer does afterwards, or demolition the buyer intends, do not change the answer.

What about a building being converted or a cleared plot?

A building in the process of being constructed or adapted for use as a dwelling is residential even though no one could live in it. SDLTM00400 explains that HMRC treats a new building as a dwelling once works on top of the foundations have begun. Planning permission alone, demolition and site preparation do not count. So a plot where the old house has already been demolished, and nothing has been built, is non residential. A derelict building where conversion work to residential use has physically started is residential, even if it was previously, say, a barn.

How does this work in practice?

Illustration only. Sam owns a home and in 2026 to 2027 buys a tired house for £400,000. It needs a new roof, rewiring, a boiler and damp treatment, and was let until last year.

Treatment Calculation Tax
Residential rates 0% on £125,000, 2% on £125,000, 5% on £150,000 £10,000
Residential plus 5% surcharge £10,000 plus 5% of £400,000 £30,000
Non residential rates 0% on £150,000, 2% on £100,000, 5% on £150,000 £9,500

On these facts the house is plainly a dwelling under the Mudan approach: it was recently lived in and the defects are curable. Sam pays £30,000. Only if the house were, for example, structurally unsafe and fit only for demolition would non residential treatment be arguable.

What mistakes do buyers make?

  • Signing up to a no win, no fee repayment claim. HMRC’s July 2025 warning describes a buyer who received a repayment less a 30% fee, then had to repay the full amount with interest and a penalty after a compliance check. SDLT is self assessed, so the buyer carries the risk, not the agent.
  • Equating uninhabitable with unmortgageable. A lender’s refusal to lend until works are done says nothing about whether the building has lost the character of a dwelling.
  • Relying on the length of the works. Mudan rejected any test based on how long repairs take.
  • Missing the time limit for a genuine claim. A return can be amended within 12 months of the filing date, which is 14 days after the effective date.

For the related question of when grounds, paddocks or annexes make a purchase mixed, see SDLT on mixed use and non residential property. The surcharge itself is covered in SDLT higher rates for additional dwellings, and relief for buyers who have never owned a home in SDLT first time buyer relief. Where a disputed rate stems from the purchase price itself, what counts as consideration for SDLT explains the base the rates are applied to.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.