If I start gutting the flat the day I complete, does that change the stamp duty?

No. The rate is fixed by the flat's character at completion. The Court of Appeal rejected the idea that a brief inability to occupy matters. What you do to the flat afterwards has no effect on the rate you owe. You could strip it back to brick the next morning. The stamp duty was settled the moment you completed, on the flat as it then stood.

Does it matter that the seller lived there right up to completion?

Yes, and it counts against any claim. HMRC treats recent and past use as a home as a strong sign that a property is suitable for use as a dwelling. A flat someone has just been living in is very hard to call unsuitable. The fact that they managed to live there, right up to the day you bought it, is close to proof that it functioned as a dwelling.

We are buying it to live in as our only home. Do the surcharges apply?

It depends. The 5% additional-dwelling surcharge applies only if you will own more than one dwelling at the end of the day you complete. There are rules that let you replace a main residence without paying it. The 2% non-resident surcharge applies only if you are not UK resident. If neither applies, you pay the standard residential rates.

Is it different if the flat sits above a shop, in a mixed-use building?

It can be, but for a different reason. Non-residential or mixed rates depend on what you actually buy, not on the flat's condition. If you buy a flat together with commercial premises, the purchase can count as mixed use. If you buy only the flat, it is residential, however run-down it is. Condition never turns a flat into a mixed-use purchase.

Does buying through a company change whether it counts as residential?

No. The flat is still residential property. A company buyer pays the higher residential rates. For a residential property bought for more than £500,000, a single rate of 17% can apply to some corporate buyers. Condition does not move the flat into the non-residential category. The buyer being a company changes the rate that applies, not what the property is.

No Stamp Duty Break for an Unmodernised London Flat

The myth, and the one-line answer

There is a familiar whisper around any run-down flat in prime London: it is a wreck, so the stamp duty must be lower. Specialist reclaim firms market this hard. They tell buyers that an unmodernised or uninhabitable flat counts as non-residential, so you can pay a lower rate or claim a refund after completion.

The one-line answer is no. A flat that needs renovation is still residential property. You pay residential Stamp Duty Land Tax, the tax you pay when you buy property in England and Northern Ireland, often shortened to SDLT.

The reason this myth survives is that the gap is real money. In the leading case, about £100,000 turned on the question. On a prime-London purchase the difference can run to tens of thousands of pounds, so the temptation to chase it is obvious.

The problem is that the claim almost always fails, and a wrong claim leaves you worse off than no claim at all. The Court of Appeal, the senior court that sets binding precedent below the Supreme Court, settled the point in a case called Mudan v HMRC in June 2025. This article explains what that decision means for anyone buying unmodernised stock, and where the one genuine exception sits.

The test that decides it, suitable for use as a dwelling

Stamp duty splits all property into two camps: residential and non-residential. Residential rates are higher. So the whole argument turns on which camp your flat sits in.

The law sets the test in section 116 of the Finance Act 2003. Residential property means a building that is used, or is suitable for use, as a dwelling. A dwelling is a home: somewhere a person can live.

The key word is suitable. Suitable for use as a dwelling does not mean ready to move into. A property can need substantial work, and still be suitable for use as a dwelling. The Court of Appeal was clear on this point.

The real test is whether the building keeps the fundamental character of a dwelling. It is not a snapshot of whether you could sleep there on the night you complete. A home that needs heavy work is still, in its bones, a home.

In Mudan, this is what decided it. The buyer accepted that his house was still residential in character when he bought it. Once that was conceded, the argument was effectively over. The building was a dwelling that needed work, not something that had stopped being a dwelling at all.

What does not win you the lower rate

The Court of Appeal and HMRC are blunt about this. Needing repair, renovation or modernisation does not strip a building of its residential character. The list of problems that do not help a claim is long, and it covers most of what a buyer of unmodernised stock will find.

A flat is still residential even if it needs all of the following. Complete rewiring. Dangerous electrics. A missing or failed boiler and pipework. Broken windows. Damp and water coming in. A vermin infestation. A kitchen or bathroom that has been temporarily taken out. Flood damage. Asbestos that can be removed. Structural defects that can be repaired.

None of these makes a flat non-residential. Not one of them on its own, and not all of them stacked together. A flat can need every item on that list and still be a dwelling in the eyes of the law.

HMRC's own published position is plain. It states that a very high proportion of these repayment claims are wrong. It states that there is no lower rate, and no relief, for so-called uninhabitable properties. The category that the reclaim firms sell does not exist in the way they describe it. The work a flat needs is a building problem, not a tax category.

What does win, the narrow exception of genuine dereliction

There is one way a property leaves the residential camp. It has to have lost the fundamental character of a dwelling altogether. That means genuine dereliction: a building where demolition is effectively required, or one so dangerous it can no longer be a home.

The case that won shows where the line sits. In a 2019 case called Bewley, a derelict bungalow had been empty for years. Its heating, pipes and floorboards had been removed. Asbestos was so widespread that removing it meant taking the building apart almost completely. There was planning permission to demolish it, and no lender would offer a mortgage. The plan was a wrecking ball, not a builder. The court agreed it was not suitable for use as a dwelling.

The case that lost shows how high the bar is. In a 2023 case called Henderson, a house had a collapsed ceiling, props holding it up, and dangerous electrics. It was still held to be residential, because nothing needed demolishing and repair was viable.

So the practical test for a buyer is simple. If a sensible plan is to renovate the flat, it is residential. If the only plan is to knock it down, you might have an argument. A prime-London flat in a converted townhouse is almost never the second thing.

What you will actually pay

For an unmodernised prime-London flat, you pay residential stamp duty at the standard residential rates. On top of that sit two possible surcharges. The additional-dwelling surcharge applies if the flat will not be your only home, for example a second home or a buy-to-let. The non-resident surcharge applies if you are not resident in the United Kingdom.

A worked example shows the size of the gap. Take a flat bought for £1.5 million at current rates. Residential stamp duty on it comes to about £93,750. The non-residential rate that reclaim firms chase would be about £64,500. The gap between them is about £29,250.

That gap is the whole prize, and it is exactly what HMRC reclaims, with interest and a penalty, if you claim the lower rate wrongly.

If the additional-dwelling surcharge applies, add five per cent across the entire price, and the bill rises well above those figures.

Two things to keep in mind. Multiple Dwellings Relief, an old route that reduced the bill when you bought several dwellings in one go, was abolished for purchases on or after 1 June 2024. And stamp duty applies only in England and Northern Ireland. Scotland and Wales run their own separate property taxes.

The point is to budget the full residential figure from the start. Stamp duty is part of the true cost of a project flat, sitting alongside the building work itself. It is worth understanding how a cost plan differs from a quote before you commit, so the tax sits in the budget rather than ambushing it.

The reclaim trap, and the cost nobody quotes you

Here is how the trap works. A reclaim firm offers a no win, no fee deal. It files a claim that your flat was uninhabitable, so the lower rate applied. If a refund comes through, the firm takes a percentage. Then HMRC looks again, decides the flat was residential all along, and reverses the refund. The firm keeps nothing at risk. You repay the refund in full, with interest and a penalty on top, and you end up out of pocket.

HMRC is now doing exactly this. It has called the Mudan decision a major win that protects public funds, and it has published a warning to homebuyers about these claims. Its own example describes a buyer who got a refund, paid the agent a cut, then had the whole thing clawed back with interest and a penalty.

The risk sits with you, not with the firm that filed the claim.

The myth survives for a reason. The people around a prime-London purchase, the agents, the advisers and the construction managers who scope the renovation, often find it easier to let a buyer believe a wreck is a bargain than to hand over the full number. A construction manager who prices the building work but lets the client walk in thinking the tax will be light, when residential stamp duty is part of the real cost of the project, is part of that problem, Myrmex included.

The honest version is the cheaper one. Get your stamp duty position confirmed by a conveyancer, the lawyer who handles the legal side of a property purchase, before you exchange. Budget the residential rates in full. Treat anyone promising a refund on a flat you can actually renovate with suspicion. This is the law as it stands, not advice on your own purchase. If you want a clearer view of what a project flat really costs once every line is counted, that is the next thing to read.

Stamp duty on an unmodernised or uninhabitable flat: what Mudan v HMRC settled