From “Snapshot Habitability” to “Fundamental Characteristics”: The Court of Appeal’s Definitive Test for SDLT Residential Status

1. Introduction

Mudan & Anor v Revenue and Customs ([2025] EWCA Civ 799) is the latest and now leading authority on when a property is treated as “residential” for Stamp Duty Land Tax (“SDLT”) purposes under the Finance Act 2003. The Court of Appeal (Lewison, Lewis and Holgate LJJ) resolved a string of conflicting First-tier and Upper Tribunal decisions and laid down a new, authoritative test for the phrase “suitable for use as a dwelling” in s.116.

The Appellants, Mr and Mrs Mudan, purchased a large, dilapidated house in south-east London. They argued that because the property required extensive works (rewiring, boiler, plumbing, kitchen and security repairs), it was not “suitable for use as a dwelling” on the completion date and therefore attracted the lower, “mixed-use” Table B rates of SDLT. Both the FTT and UT rejected that view. The sole issue on appeal was one of statutory construction: does “suitable for use” mean “immediately habitable”, or is the enquiry broader?

Lewison LJ, giving the only reasoned judgment, dismissed the appeal and articulated an eight-point framework that focuses on the fundamental characteristics and ongoing identity of the building rather than its snapshot habitability. The decision harmonises existing tribunal case-law, curtails arguments built on minor disrepair, and will significantly influence both conveyancing practice and SDLT litigation.

2. Summary of the Judgment

1. Section 55 FA 2003 charges higher SDLT on “residential property.”
2. “Residential property” is defined in s.116 FA 2003 to include a building “used or suitable for use as a dwelling”.
3. The Court held that “suitable for use” does not equate to “ready for immediate occupation”; instead it captures buildings possessing the fundamental characteristics of a dwelling, even if repairs or renovations are needed.
4. The Court endorsed and refined the UT’s multi-factorial guidance (para 58 of the UT’s decision) and emphasised:

Prior residential use is a powerful indicator;
Works must be considered collectively;
Only works that strip the building of its dwelling identity (e.g., demolition, major structural failure, asbestos preventing safe remediation) disqualify it;
Suitability is not confined to purely physical factors; legal restrictions may also count (per Ridgway).

5. Because the Liskeard Gardens house retained its essential dwelling character and the required works were “renovations”, not “adaptations” or rebuilding, the property was residential. The higher SDLT therefore applied.

3. Analysis

3.1 Precedents Cited and Their Influence

PN Bewley Ltd v HMRC (FTT 2019) – distinguished: asbestos-riddled bungalow about to be demolished; showed when works negate dwelling identity.
Fish Homes Ltd v HMRC (FTT 2020) – approved distinction between “capable” and “suitable” but described as “a slim one”.
Fiander (UT 2021) – key source for the objective, multi-factorial test adopted and expanded.
Doe (UT 2022) – relevance of historic use reaffirmed.
Henderson Acquisitions (FTT 2023) – notion that suitability ≠ “immediately habitable” endorsed.
HMRC v Ridgway (UT 2024) – broadened “suitability” to include legal restrictions.
Cross-disciplinary cases (Hosebay, Boss Holdings, Aldford House) – used for the “identity/function” concept.
Statutory interpretation authorities (R (O), Kostal, PACCAR) – guided purposive methodology and potency of defined terms.

Together these cases established two strands now fused by the Court: (i) a purposive, context-based reading of undefined adjectives such as “suitable”; and (ii) a factual enquiry into whether the building has lost its residential identity. Mudan synthesises these strands into a single, authoritative rule.

3.2 The Court’s Legal Reasoning

Statutory Context. SDLT is charged on land transactions that typically look to medium- or long-term use. A purely snapshot test would cause irrational oscillations (para 61: the half-built estate hypothetical).
Binary Nature of s.55. Because property can only be residential or non-residential, the definition must be broad and workable; Parliament could not have intended arbitrary results (paras 59–62).
Purpose Over Literalism. Following R (O) and Kostal, Lewison LJ stressed purposive construction. He rejected the Appellants’ “literalist” reading that “suitable” means “presently habitable”.
Identity Test. Drawing on Boss Holdings and Hosebay, the Court reasoned that the crucial enquiry is whether the building retains the identity or fundamental characteristics of a dwelling. Minor or even substantial renovations do not erase that identity; demolition, total stripping, or repurposing might (paras 64–66).
Linguistic Potency. Applying PACCAR, the ordinary meaning of “residential property” coloured the definition: an ordinary speaker would still call a refurbishing house “residential property”.
Rejection of Appellants’ Six Sub-Arguments. Each sub-argument (immediacy, dichotomy with “capable”, express drafting choices, etc.) was rebutted as either circular, misreading the composite definition, or leading to absurd results (paras 66–68).

3.3 Impact on Future Cases and Practice

1. Litigation Forecast. Taxpayers will find it much harder to downgrade SDLT rates by pointing to disrepair alone. Only cases involving near-dereliction, material structural failings, or genuine change of use are likely to succeed.
2. Transactional Due-Diligence. Conveyancers advising on mixed-use claims must now document very strong evidence of lost dwelling identity (e.g., planning permissions for commercial redevelopment, structural reports proving unsafety to refurbish).
3. HMRC Audits. HMRC can rely on the eight-point framework to challenge aggressive refund claims retrospectively. Thousands of pending refund requests for “do-er-upper” houses are potentially jeopardised.
4. Broader Statutory Interpretation. The judgment fortifies the purposive approach to defined terms in tax statutes, potentially spilling over into VAT “dwellings,” capital allowances on “plant,” and Business Rates exemptions.
5. Policy Signal. Parliament may now be less pressured to amend s.116. Where lobbying had argued for clearer thresholds, the judiciary has filled the gap.

4. Complex Concepts Simplified

Stamp Duty Land Tax (SDLT) – A tax payable on most property transactions in England and Northern Ireland. Rates vary; “residential” land usually attracts higher rates than “non-residential/mixed-use”.
Section 116 FA 2003 – Defines “residential property”. Three main limbs:
1. Building used or suitable for use as a dwelling;
2. Garden or grounds of such a building;
3. Rights that benefit such land.
Suitable vs. Habitable – “Habitable” means you could move in tonight; “suitable” (post-Mudan) is broader: the building retains the characteristics of a dwelling even if it needs work.
Renovation vs. Adaptation – Renovation restores; adaptation changes the essential nature. Only the latter, if under way and not yet complete, may fall outside “suitable”.
Identity of a Building – A conceptual tool assessing whether the structure is still fundamentally a house/flat, drawing on historical use, physical attributes, and degree of change.
Potency of the Defined Term – A principle from PACCAR: the everyday meaning of the word being defined informs the interpretation of its statutory definition.

5. Conclusion

Mudan crystallises the “fundamental characteristics” test for SDLT residential classification. Rejecting a narrow, snapshot habitability approach, the Court of Appeal held that a building remains residential until it sheds its dwelling identity through extreme structural deficiency or decisive change of use. The decision brings clarity, curtails opportunistic tax planning, and offers a coherent analytic framework for tribunals and practitioners. Ultimately, it reaffirms that statutory interpretation must serve legislative purpose and practical common sense, not artificial linguistic hair-splitting.