Understanding the Mudan v HMRC Case: What It Means for Property Buyers and Stamp Duty Land Tax

When purchasing a property, one of the most important considerations for buyers is the amount of Stamp Duty Land Tax (SDLT) they will need to pay. The recent decision by the Court of Appeal in the case of Mudan v HMRC [2025] EWCA Civ 799 has provided significant clarification on what constitutes a "residential property" for the purposes of SDLT. This case is particularly relevant for individuals purchasing properties that require substantial renovation or redevelopment. Here is a detailed explanation of the case and its implications.

The Background of the Case

In the case of Mudan v HMRC, Mr. and Mrs. Mudan purchased a property in August 2019. Although the property had previously been used as a dwelling, it required extensive work, including complete rewiring, to make it safe for habitation. The taxpayers argued that the property was not a "residential property" at the time of purchase because it was not suitable for immediate use as a dwelling. They submitted their SDLT return on the basis that the property qualified for non-residential rates, which resulted in a significantly lower tax liability.

However, HM Revenue and Customs (HMRC) challenged this treatment, asserting that the property was residential for SDLT purposes. The First-tier Tribunal and the Upper Tribunal both ruled in favour of HMRC, and the taxpayers’ subsequent appeal to the Court of Appeal was ultimately dismissed.

Key Principles from the Court of Appeal Decision

The judgment of the Court of Appeal clarified several important principles for determining whether a property is classified as "residential" for SDLT purposes:

1. Purpose and Context Are Important
   The Court emphasised that the definition of "residential property" must be interpreted in the context of SDLT legislation, which is designed to tax land acquisitions as a medium- to long-term enterprise. This means that both the past use and the future intended use of the property are relevant considerations.

2. Suitability for Use as a Dwelling
   The Court rejected the argument that a property must be immediately habitable in order to qualify as residential. Instead, the test is whether the property is objectively suitable for use as a dwelling, even if it requires extensive renovation. For example, a structurally sound building with the characteristics of a dwelling does not lose its residential status simply because it needs rewiring or other significant repairs.

3. Objective Test for Residential Character
   The Court stressed the importance of an objective approach to avoid arbitrary or inconsistent outcomes. A property’s classification as residential cannot change based on the buyer’s intentions or the progress of renovation works. For instance, a dilapidated house undergoing redevelopment remains residential, just as a new block of flats under construction is considered residential even before it is completed.

4. The Structure of the Building is Key
   The suitability of a property for use as a dwelling depends on the structure of the building itself, rather than its interior condition or level of completion. A property does not lose its residential identity unless it is fundamentally uninhabitable—for example, if the walls are at risk of collapse or if hazardous materials such as asbestos are present.

Implications for Property Buyers

The Mudan case establishes a high threshold for arguing that a property is not residential for SDLT purposes. Buyers should take note of the following key points:

• Renovation Projects: If you are purchasing a property that requires significant renovation, it is unlikely to qualify for non-residential SDLT rates unless the building is genuinely derelict or unsafe.
• Past and Future Use: The property’s history and its intended future use as a dwelling will play a significant role in determining its SDLT classification.
• Seek Professional Advice: Given the complexity of SDLT rules, it is essential to seek advice from a qualified solicitor or tax advisor when purchasing a property, particularly if you believe it may qualify for non-residential rates.

The decision of the Court of Appeal in Mudan v HMRC provides much-needed clarity on the definition of "residential property" for SDLT purposes. For property buyers, the key takeaway is that the suitability of a property for use as a dwelling is assessed objectively, with a focus on the structure of the building and its overall residential character. While this judgment may limit opportunities to claim non-residential SDLT rates, it also ensures a more consistent and predictable application of the rules.

If you are considering purchasing a property that requires renovation, it is highly advisable to consult with a conveyancing solicitor or tax advisor. This will help you understand your SDLT obligations and avoid any unexpected tax liabilities.