In a rare victory for the taxpayer, HMRC have lost a Stamp Duty Land Tax (SDLT) case concerning the issue of whether a property was residential or not.
In the case of Oakwood Great Oak Ltd v The Commissioners for His Majesty's Revenue & Customs [2026] the taxpayer bought a property for £2.4m, which was a house in a very dilapidated state and paid SDLT based on it being a non-residential property. This gave rise to a significant SDLT saving which would not have existed if the residential SDLT rates had applied.
The taxpayer bought the property as a development opportunity with the intention of knocking it down to redevelop into two new houses. The property had been vacant for over 3 years when acquired and was in a condition which extended beyond ordinary dilapidations resulting from age and lack or modernisation. The property, although having some structural and fabric defects was not at risk of structural failure but it did contain asbestos in a number of locations, the removal of which would not have left the property intact. Rather, it would have required the removal of existing materials, systems and installations, thereby creating a need for extensive reinstatement works thereafter. The property was not safe for occupation in the state it was acquired and the taxpayer estimated that the total cost of the remedial works could be £2.25m which made it uneconomical to renovate. For these reasons, the taxpayer argued that the property was not a 'dwelling' for SDLT purposes and that the non-residential SDLT rates should apply to it. HMRC disagreed.
Section 116(3) of the Finance Act 2003 provides that 'residential property' can include – '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'. Guidance on the phrase – 'suitable for use as a dwelling' is provided in the recent case of Mudan v HMRC [2025] which the First-tier Tribunal relied on heavily and it requires a multifactorial approach.
HMRC said that section 116(3) did not require the property to be suitable for immediate use on acquisition and instead, the question was whether it had retained its residential identity and character. HMRC argued that the property remained recognisable as a house and continued to possess the fundamental characteristics of a dwelling. The economic viability of the reinstatement works, although not wholly irrelevant, should not, HMRC argued, form part of the consideration as this was not part of the prescribed approach in Mudan. The reinstatement works were all capable of being remedied and the evidence seen by HMRC did not suggest that demolition of the property was the only realistic option.
Drawing all of the evidence together, the First-tier Tribunal determined that although the building physically remained standing and retained a residential layout, it was, at the date of acquisition, a severely deteriorated structure requiring extensive structural works, asbestos remediation and consequential reinstatement before it could again function as a dwelling. The Tribunal accepted that previous residential use was highly relevant to the question at hand, but it did not consider that point to be determinative. As regards the remedying of defects, the Tribunal was of the view that this could not sensibly be reduced to the question of whether repair was theoretically possible in the abstract. It noted – 'Almost any standing structure can be said to be capable of repair if one assumes the availability of unlimited time, resources and expenditure. Such an approach risks depriving the statutory assessment of meaningful content. If the mere theoretical possibility of repair were determinative, a building would retain its residential character regardless of the extent of its deterioration, contamination or dereliction, provided only that it had not yet reached the point of physical collapse. We do not consider that such an approach can be reconciled with the multifactorial assessment endorsed by either the Upper Tribunal or the Court of Appeal in Mudan'. The Tribunal considered that the property had crossed the line contemplated by Mudan and that the state of it and the intervention required, had fundamentally altered its character and identity.
Although a good win for the taxpayer, this case demonstrates that for SDLT purposes, the bar for determining when a former dwelling has ceased to be a dwelling remains high.
If you have any SDLT queries and would like advice, please contact our tax specialists.
