When Mr. and Mrs. Mudan bought a property in London for £1.755 million and paid stamp duty land tax (SDLT) at the residential rate, including a 3% supplement due to owning another home, they sparked a debate on tax rates for derelict properties. They argued that the property, in its dilapidated state, should not be taxed as a residential property but at the lower non-residential rates. HMRC disagreed, maintaining that the property was habitable at the time of completion and thus subject to higher rates.

The First-tier Tribunal was tasked with assessing the property’s condition. Despite its structural soundness, the property was in shambles: broken entry points, a foul-smelling kitchen, damaged kitchen units, non-functional utilities, and unsafe gas and electricity. It took ten months of repairs before the Mudans could move in, indicating that the property was far from habitable at the time of purchase.

The tribunal’s test for classifying a property as non-dwelling is stringent: the disrepair must be so extensive that demolition is necessary. In this case, despite the severe damage, the property was not considered derelict since it could be repaired and made habitable without demolition. Thus, the Mudans’ appeal was dismissed, and the property was deemed residential for SDLT purposes, subject to the higher tax rates.

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