HMRC is ramping up investigations into relief claimed against Stamp Duty Land Tax (SDLT) on the basis that a residential property was uninhabitable when purchased.

Those who have previously claimed such relief should carefully review their position.

Following the case of Mudan & Anor vs HMRC, that the Court of Appeal is upholding the decision of in 2025, and in response to an increasing number of firms persuading purchasers to claim such relief, HMRC is now targeting these claims.

Unfortunately, these firms often work on a “No win, no fee” basis – and given HMRC’s policy is usually to pay such claims now and review/challenge later, the claim will almost certainly be initially regarded as successful. However, HMRC has at least four years, and potentially as many as 20, in which to challenge those claims and claw back the relief, which is what we are seeing now.

In most cases, if the claim is successfully challenged (and HMRC believes 95% of claims are incorrect), the taxpayer will find themselves having to repay the relief in full (plus interest and potentially a penalty) but will be unable to recover the ‘success fee’ paid to the advisor.

The definition of “Not suitable for use as a dwelling”

The legislation concerning SDLT charges on residential property can be found in the Finance Act 2003. Section 116(a) of that Act defines residential property as “a building that is used, or is suitable for use, as a dwelling or is in the process of being constructed or adapted for such use”.

As such, where a property is not suitable for use as a dwelling, it is not considered a residential property, and a lower rate of SDLT will apply (a maximum of 5% for a property over £250,000 in the 2024/25 tax year). This saving is enhanced further for purchasers of second properties as the 3% uplift will also not apply in such cases.

The savings can, therefore, be substantial, but HMRC’s guidance (SDLTM00385) makes it clear that HMRC takes a very strict approach to determine what is suitable for use as a dwelling. The manual notes in particular that “there is a clear distinction between a derelict property and a dwelling that is in need of modernisation, renovation or repair, which can be completed without first addressing structural defects that would make the property dangerous to work on and/or live in.”’ According to HMRC, even the removal of bathroom or kitchen facilities, substantial damage to the floors, windows or roof, unsafe electrical wiring, or structural defects which can be repaired are not sufficient for a property to qualify for the relief.

The Upper Tribunal supported this position in Mudan & Anor v HMRC and confirmed there should be a focus on the fundamental characteristics and nature of a building over time, rather than whether the property is habitable at a particular date.

Therefore, in HMRC’s view, if a property was intended for use as a dwelling, and has always been used as a dwelling, it is likely to be considered suitable for use as a dwelling at the time of purchase, even if it requires work to make it habitable.

The only exception appears to be if the building is not structurally sound, so that repairs would be dangerous to undertake.

What should you do now?

Anyone contacted in relation to a claim for tax relief, especially on a “no win, no fee” basis, should be extremely careful and take independent advice before proceeding.

If you or one of your clients has made such a claim, and HMRC has raised an enquiry, or you simply believe the claim may not have been correct, we can review the issue and help you to correct the position (if necessary) and mitigate any penalties HMRC may seek to impose.