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This legal tax-saving strategy can significantly reduce purchase costs, but HMRC has strict rules on what qualifies as an uninhabitable property. Misunderstanding these rules could lead to unexpected tax bills and penalties.
In this guide, we explain:
If you are considering buying a rundown property at auction, read on to ensure you qualify for tax savings while staying fully compliant with the law.
Examples of uninhabitable properties
What does NOT qualify?
– Cosmetic issues (e.g., peeling wallpaper, old carpets, broken cupboards)
– No central heating but functioning fireplaces or electric heaters
– An old but usable kitchen or bathroom
– A property that needs refurbishment but is still habitable
Key Point: The presence of a working kitchen and bathroom—no matter how dated—can make a property ‘habitable’ in HMRC’s view, meaning SDLT will be charged at standard rates.
HMRC determines whether a property qualifies for non-residential SDLT rates by assessing whether it could reasonably be used as a home at the time of purchase.
To test this, they consider:
Why it worked? The property was unsafe and unlivable without major reconstruction.
If you believe a property qualifies for SDLT exemption, you must provide evidence to support your claim. This includes:
Photographic Proof – Take detailed images showing missing or unusable kitchen/bathroom, structural damage, or severe hazards.
Surveyor’s Report – A professional assessment confirming the property is unsafe or lacks essential facilities.
Utility Reports – Documentation from utility companies confirming no active water, gas, or electricity supply.
Council Notices – If the local authority has issued notices declaring the property uninhabitable, this can strengthen your case.
Legal Representation – A solicitor or tax specialist can help structure your claim to HMRC.
HMRC Scrutiny: If your claim is rejected, you will have to pay SDLT (plus potential penalties).
Mortgage Restrictions: Lenders often refuse mortgages on uninhabitable properties, requiring cash or bridging finance.
Renovation Costs: The property may require substantial investment before it can be rented or resold.
Resale Challenges: Buyers may struggle to secure financing if the property is still considered uninhabitable.
If HMRC accepts your property as non-residential, you will pay lower SDLT rates instead of residential ones:
Property Price | SDLT Rate (Non-Residential) | SDLT Rate (Residential) |
Up to £150,000 | 0% | 0% (FTB) / 3% (BTL & second homes) |
£150,001 – £250,000 | 2% | 5% |
Over £250,000 | 5% | 8% (BTL & second homes) |
Buying an uninhabitable property at auction can provide significant SDLT savings, but it requires:
A: According to HMRC, a property is deemed uninhabitable if it lacks basic living facilities, such as a functional kitchen or bathroom, has severe structural issues, or poses health and safety risks (e.g., no electricity, unsafe flooring, or major damp problems).
A: No. Minor issues like outdated décor, old wiring, or a leaky roof do not make a property uninhabitable. The property must be truly unsuitable for living at the time of purchase to qualify for non-residential SDLT rates.
A: Evidence such as a surveyor’s report, photographs, or statements from a qualified professional (e.g., a builder) can support your claim. HMRC may also conduct inspections if they suspect a misclassification.
A: If a property is deemed uninhabitable, it may qualify for non-residential SDLT rates, which start at 0% for properties up to £150,000 and have lower thresholds than standard residential rates.
A: Yes, you can apply for a refund from HMRC if you can prove the property should have been classified as non-residential. There is usually a four-year window to submit a claim.
A: Most high street lenders will not offer standard mortgages on properties classed as uninhabitable. Investors often use bridging loans or cash purchases, then refinance once the property is made habitable.
A: Yes! Many investors buy auction properties in poor condition and renovate them. If a property is legally uninhabitable at purchase, SDLT savings can be significant.
A: The condition of the property at the time of completion is what matters. If it’s uninhabitable on the purchase date, it may qualify for reduced SDLT, even if you plan to renovate it straight away.
A: Yes, if the property meets HMRC’s definition of uninhabitable. However, you must prove it cannot be lived in by tenants until major work is completed.
A: Use our Stamp Duty Calculator to check your potential savings and compare residential vs. non-residential rates.
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