SDLT – ‘residential property’

The CA has heard an appeal in which it considered what amounts to ‘residential property’ for SDLT purposes.

‘1. The issue on this appeal is whether stamp duty land tax (“SDLT”) is to be charged on Mr and Mrs Mudan’s purchase of 14 Liskeard Gardens, London SE3 at the rates specified in Table A in section 55 of the Finance Act 2003 (as modified by paragraph 1(2) of Schedule 4ZA of the Finance Act 2003), or Table B in that section. The rates of SDLT payable under Table A are higher than those in Table B. Table A applies “if the relevant land consists entirely of residential property”; and Table B applies if “the relevant land consists of or includes land that is not residential property”. The difference between the two rates is of the order of £100,000 on the facts of this case; but we are told that there are other cases which depend on the outcome of this appeal.

2. The distinction between “residential property” and “non-residential property” is contained in section 116 of the 2003 Act which relevantly provides:

“(1) In this Part ‘residential property’ means –

(a) 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, and

(b) land that is or forms part of the garden or grounds of a building within paragraph (a) (including any building or structure on such land), or

(c) an interest in or right over land that subsists for the benefit of a building within paragraph (a) or of land within paragraph (b);

and ‘non-residential property’ means any property that is not residential property.”

3. Whether property is or is not residential property is normally determined as at the date of the purchase. The issue, therefore, is whether 14 Liskeard Gardens was residential property when Mr and Mrs Mudan purchased it on 5 August 2019.

4. Both the FTT and the UT held that it was. The decision of the FTT (Judge Baldwin) is at [2023] UKFTT 317 (TC); and the decision of the UT (Judges Scott and Greenbank) is at [2024] UKUT 307 (TCC), [2025] 1 WLR 727.

The facts

5. Mr Mudan himself gave evidence. The FTT found him a straightforward witness who did not exaggerate the state of the property. I think that we can take it that the FTT accepted his evidence.

6. The FTT summarised part of his evidence at [27]:

“‘Mr Mudan agreed that the Property was still residential in nature. It had been someone’s house for many years and it was not falling down. Nevertheless, he did not consider that it was safe to live in with a young family. This was so even though there was no structural damage to the Property and no structural work was required except to replace the missing roof over the boiler room. Mr Mudan was sure that there was a danger to life because of the state of the electrics.”

7. The FTT recorded at [39] that Mr Mudan agreed that the Property was a large, detached house in a residential street. It had previously been used as a dwelling (and the FTT also recorded at [17] that when Mr Mudan visited the property in August 2018 there were people living there). Mr and Mrs Mudan’s purchase was financed (at least in part) by loan secured by a mortgage granted to a lender who was willing to lend on that security.

8. The FTT summarised its findings of fact at [32]:

“I find as facts that, as at the effective date, the Property:

(a) had been used relatively recently as a dwelling; and

(b) was structurally sound; but

(c) was not in a state such that a reasonable buyer might be expected to move in straight away. I find that, before a reasonable buyer would consider the Property was ‘ready to move into’, the following works would be needed:

(i) the Property would need complete rewiring;

(ii) a new boiler, pumps and gas and water pipes would be required in the boiler house, so that the water system operated safely and the boiler house roof would need fixing;

(iii) the leaking pipes in the cellar would need to be repaired or replaced;

(iv) the kitchen units and appliances would need to be stripped back to the bare walls and replaced;

(v) broken windows and doors (including locks) would need repairing and the Property made secure;

(vi) a lot of rubbish (inside and outside the house) would need clearing away.”

9. The FTT clarified at [34] that its conclusions were based on “a reasonable occupier” rather than an occupier in the particular position of Mr and Mrs Mudan and their young family.

Mr and Mrs Mudan’s case

10. The single ground of appeal is that the FTT and the UT both misinterpreted the requirement in the definition of section 116 that in order to qualify as “residential property” the building in question must be “suitable for use” as a dwelling.

11. Mr Firth KC, on their behalf, argues that the meaning of that expression is clear. A building is not “suitable for use as a dwelling” unless it could actually be used as a dwelling at the relevant time. It does not include a building which is simply capable of being made suitable for use as a dwelling.’

The CA took a purposive approach to the interpretation of the relevant legislation and considered the authorities. The CA dismissed the appeal and found the decision of the UT to be legally sound. At para 54, the CA said:

‘[54] [The UT] summarised their conclusions in a lengthy passage at [58] which deserves quotation in full:

“‘In our opinion, the following points should be considered in determining the impact of works needed to a building on its suitability for use as a dwelling:

(1) In assessing the impact of the works needed to a building in the context of determining suitability for use as a dwelling, a helpful starting point is to establish whether the building has previously been used as a dwelling. That is relevant for two reasons. First, as we said in Fiander UT [2021] STC 1482, previous use as a single dwelling is relevant in determining whether an alteration needed to a building would be a repair or renovation (because of prior use as a dwelling) or, alternatively, an adaptation or alteration, changing the building’s characteristics by making it usable as a single dwelling for the first time. Second, actual use as a dwelling is a very strong indication that the building has possessed the fundamental characteristics of a dwelling, and has previously been suitable for use as a dwelling. An assessment of the repairs and renovations needed can then be made against that backdrop and by reference to the state of the building during its actual use as a dwelling. Previous use is, of course, fact sensitive, and factors such as the length of time between the previous use as a dwelling and the effective date will be relevant.

The fact of previous use as a dwelling does not mean that a building remains suitable for use as a dwelling regardless of what happens to the building and regardless of the effluxion of time. Equally, to state the obvious, the fact that there has been no previous use as a dwelling does not mean that a building is not suitable for use at the effective date. However, previous use is a highly relevant factor in the evaluation of suitability.

(2) Looking at the building as at the effective date, an assessment must be made of the extent to which it has the fundamental characteristics of a dwelling, including the extent to which it is structurally sound. Is it, for instance, a desirable house which has become dilapidated and requires updating, or is it an empty shell with no main roof? Subject to the points which follow, in principle the former is likely to be suitable for use as a dwelling and the latter is not.

(3) The necessary works should be identified, and their impact on suitability for use should be considered collectively. A distinction must be drawn between works needed to render a building habitable and works to be carried out to make the property ‘a pleasant place to live’, in the words used by the FTT at FTT [30] (such as painting and decorating). The latter do not affect suitability for use as a dwelling.

(4) An assessment should be made of whether the defects in the building which require works are capable of remedy (in colloquial terms, are fixable). That assessment should take into account whether the works would be so dangerous or hazardous as to prejudice their viability (as in Bewley [2019] UKFTT 65 (TC)). If they would, then the building is unlikely to be (or remain) suitable for use as a dwelling. It should also take into account whether the works could be carried out without prejudicing the structural integrity of the building (because, for instance, the walls might collapse). If they could not, the building is unlikely to be suitable for use as a dwelling.

(5) If occupation at the effective date would be unsafe or dangerous to some degree (for instance, because the building requires rewiring), then that would be a relevant factor, but would not of itself render the building unsuitable for use as a dwelling.

(6) The question of whether a repair would be a ‘minor repair’ is not irrelevant, but nor is it particularly informative in assessing suitability. While certain repairs were described as ‘minor’ in Fiander FTT, that classification was not a reason for the decision in Fiander UT. It is too vague and abstract to form a principled basis for the overall determination of the impact of the need for repair on suitability. For the same reason, an approach which seeks to establish whether the necessary works are ‘fundamental’ is acceptable if it is effectively shorthand for the approach we describe above, but as a free-standing test it is not particularly informative.

(7) Applying the principles we have set out, the question for determination is then whether the works of repair and renovation needed to the building have the result that the building does not have the characteristics of a dwelling at the effective date, so it is no longer residential property.”

[55] In the result, the UT held that the approach of the FTT was correct in law, and that it was entitled to make the finding of fact that it did. Mr and Mrs Mudan’s appeal was therefore dismissed.’

See Mudan v HMRC [2025] EWCA Civ 799 reported at www.bailii.org.

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