The Court of Appeal has handed down judgment in the case of Amarjeet and Tajinder Mudan v HMRC [2025] EWCA Civ 79.
The Court held, by dismissing their appeal, that Mr and Mrs Mudan would have to pay Stamp Duty Land Tax (“SDLT”) on the property they purchased at 14 Liskeard Gardens, London SE3 (“the Property”) at a higher rate than claimed. This is despite, at the time of purchase, the Property was not suitable for habitation.
The difference in SDLT payable was £100,000.
Mr and Mrs Mudan argued that SDLT should be paid at the lower rate as when they purchased the Property it was uninhabitable, so they should benefit from the lower non-residential rate.
They sought a favourable interpretation of Section 116 of the Finance Act 2003 (“the Act”) which provides that a residential property is amongst other things, a building that is used or suitable for use as a dwelling or is in the process of being constructed or adapted.
The appeal centred around the definition of the Property being “suitable for use” as a dwelling and therefore capable of classification as a residential property.
In evidence, it was accepted that the Property required significant refurbishment, including complete rewiring, significant plumbing work, new kitchens and the replacement of doors and windows throughout.
The question Mr and Mrs Mudan asked the Court was whether in its present state the Property was “suitable for use” as a residential dwelling. If it was not, Mr and Mrs Mudan argued that they should pay the lower rate of SDLT applicable to non-residential property.
The Court of Appeal dismissed the appeal and found that the Property could be properly characterised as, “residential property”. Thus, Mr and Mrs Mudan should pay SDLT at the higher residential property rate.
Significant argument was considered in respect of the correct interpretation of the Act.
Factually, of particular relevance was the fact that Mr and Mrs Mudan had purchased the Property from a vendor who had remained in occupation until the day of completion. In the circumstances, as the Property had once been used as a dwelling and had continued to be used as a dwelling up until legal completion, the Property had not lost its identity, and the fundamental characteristics of the Property were as a residential dwelling. Accordingly, the ordinary speaker of English would characterise the Property as purely residential as, put simply, “it was the sort of property that people live in.”
In the circumstances, it appears that in the case of a property which was previously used as a dwelling but requires extensive refurbishment meaning it cannot be lived in for a long time but could be lived in once the works are complete; does not easily remove itself from the category of “residential property”.
This decision is relevant to the number of tax advisors peddling tax avoidance schemes to remove dilapidated dwellings from the ambit of SDLT due to the concept of uninhabitability. Unless appealed to the Supreme Court, the Court’s current interpretation of the Act does not assist such schemes.
Should you require any further information regarding property or business law please contact Bill Dhariwal on E: bill.dhariwal@lawcomm.co.uk and DDI: 0149 864 117.
The contents of this article does not constitute legal advice.
