In the recent case of Mudan v HMRC [2025] EWCA Civ 799, the Court of Appeal articulated a number of important principles for the purposes of determining the scope and breadth of the term “residential property” for Stamp Duty Land Tax (SDLT) purposes. Under Section 116 of the Finance Act 2003, whether a building is residential depends on whether it is used or suitable for use as a dwelling.
The taxpayers in this case, Mr and Mrs Mudan, had purchased a property in August 2019 and the issue was whether it was a residential property at the date of purchase. The previous use of the property (as recently as a year before the purchase) had been as a dwelling and the taxpayers agreed that it was residential in nature. However, they argued that it was not “residential property” at the date of purchase as it was not suitable for use as a dwelling given that, whilst structurally sound, the property needed extensive works (including complete rewiring) to be safe for them to live in it. Therefore, they filed on the basis that SDLT was chargeable on the acquisition of the property at the non-residential rates (giving an SDLT charge of approximately £100k less than would have been the case using the residential rates).
HMRC challenged this SDLT treatment by the taxpayers. The First-tier Tax Tribunal upheld HMRC’s challenge, holding that the property was residential property for SDLT purposes. The taxpayers’ appeal at the Upper Tribunal failed and they appealed further to the Court of Appeal. In rejecting the taxpayers’ appeal, the Court of Appeal set out a number of points by way of guidance to assist in the determination of what constitutes a “residential property” for SDLT purposes.
The Court of Appeal judgment
The Court made clear that the modern approach to statutory construction is to consider the intended purpose and to give effect to this. Accordingly, it emphasised the importance of the context of the definition of “residential property”: the levying of tax on acquisitions of land, which, the Court observed, is generally a medium-term (if not longer) enterprise. Therefore, in considering the nature or character of property acquired, especially property intended as the buyer’s home, rather than assessing whether the property satisfies that definition solely by reference to a snapshot on a particular date, it was important to take account of not only the past use of the property (as the Upper Tribunal had done) but also its future use, which, the Court considered, was also contemplated by that definition.
It followed that the question of whether the property was “suitable for use” as a dwelling could not be determined by reference to whether or not it was suitable for immediate occupation. Rather, as the Upper Tribunal had stated, this was a question of fact and degree, and, perhaps more fundamentally, as the Court of Appeal added, the character ascribed to the property by “the ordinary speaker of English” (who would be unlikely to view inability to live in a dwelling during a period of extensive works to it as causing the dwelling to lose its residential character).
The Court confirmed that the test for what constitutes a dwelling is objective and stressed the importance of a coherent approach to ensure results which are neither capricious nor arbitrary. A property used as a dwelling by the seller could not cease to be a residential property simply because the buyer chooses to undertake extensive works to the property, however unmodernised or dilapidated it may be, before moving into it. Nor could the status of a property being redeveloped oscillate between two different charges on account of the rate of progress of the development works, or a distinction logically drawn between the development of a new block of flats (which is clearly residential property well before the flats are completed), on the one hand, and a building having the fundamental characteristics of a dwelling but requiring complete rewiring and replumbing and the renewal of certain essential facilities, on the other. The SDLT legislation in this case is concerned with a “building”, rather than its interior fit-out (which may be relevant to the different question of whether there is a “single dwelling” for the purposes of the additional dwellings surcharge). The question of any property’s suitability for use as a dwelling for the purposes of determining whether it is subject to the residential SDLT rates depends on the structure of the building itself. The fundamental question is whether the building had lost its residential identity at the date of purchase, and it clearly had not.
In the light of the Court of Appeal decision, the bar for establishing that a developed or partially developed building, previously used or intended for use as a dwelling, is no longer a residential property is high. That might be the case with a derelict property where the walls are at risk of collapse or where asbestos is present, but not, in general, otherwise.
If you have questions or concerns about residential property and/or SDLT, please contact Michael Fluss or Johnny Drysdale.