Since the introduction of the higher rate Stamp Duty Land Tax (SDLT) for second homes we often get questions about whether or not the higher rate applies to properties in need of complete renovation. A recent decision by the Court of Appeal in Mudan and another v HMRC [2025] has provided clarity on the application of residential rates of SDLT. Although the decision gives clarity it will probably not be welcome to taxpayers as it makes it very difficult to argue that the residential rates do not apply.
The dispute centred on whether a building requiring extensive renovations—such as rewiring, a new boiler house roof, replacement of the boiler, water pumps, and pipes—should be classified as “residential property” for SDLT purposes. The buyers argued that the property was not suitable for use as a dwelling at the time of purchase and therefore should not attract the higher residential SDLT rates. HMRC disagreed, contending that the property retained its essential residential character.
Both the First-tier Tribunal and the Upper Tribunal found in favour of HMRC, and the Court of Appeal has now unanimously upheld those decisions. The judges rejected the notion that “suitable for use” means “suitable for immediate use.” Instead, they held that the test is broader, allowing consideration of the property’s past use and its fundamental characteristics rather than immediate occupancy.
The decision confirms that whether renovation works are so extensive as to deprive a building of its residential character is a question of fact and degree. In this case, although the property required substantial work, it retained its core attributes as a dwelling. The Court observed that, in ordinary language, the property was still “residential in character” at the time of purchase.
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