September 23, 2026
The Scottish Tax Chamber has allowed an LBTT appeal involving a Glasgow townhouse and mews originally built for residential use. Its decision in Bagshaw Limited v Revenue Scotland [2026] FTSTC 4 is of interest well beyond Scotland because it applies the same core statutory wording used for SDLT and engages directly with the Court of Appeal's decision in Mudan v HMRC [2025] EWCA Civ 799.
It is an important decision for advisers asked whether a difficult property purchase attracts residential or non-residential rates. It does not mean that a house becomes non-residential whenever it is uninhabitable on completion.
The taxpayer acquired a townhouse and mews in December 2020. Both had residential origins. Over many decades, however, they had been used as a nursing home, for ecclesiastical purposes, and then as offices. Office use had planning permission; the buildings appeared in non-domestic records. At purchase they were vacant, stripped out, without usable utilities and required extensive work. Residential change-of-use permission had not been obtained and conversion had not started.
The taxpayer's original return treated the purchase as residential. It subsequently claimed that the properties were non-residential and sought repayment of £111,000 in LBTT. Revenue Scotland disagreed. The tribunal allowed the appeal and repayment claim.
In Mudan, the Court of Appeal held that a dilapidated house still fell within the SDLT definition of residential property. Immediate habitability is not the test. The court accepted that a building's earlier use and its enduring characteristics matter, and that required repairs should be considered collectively. At the same time, earlier use as a dwelling cannot fix its status for all time.
That distinction mattered in Bagshaw. The tribunal found that successive substantial alterations and non-residential uses had removed the buildings' residential identity. A building's original design was relevant, but it could not outweigh its history, actual configuration, planning position and derelict state at the effective date. Returning the premises to residential use required substantial conversion, with planning permission still uncertain. The purchaser's future intention to create flats did not supply present suitability.
The tribunal considered planning restrictions as part of the overall assessment. It did not announce that absence of residential permission alone makes a property non-residential. Nor did it treat disconnected services or a vacant building as decisive in isolation.
First, establish whether the building retains the identity and fundamental characteristics of a dwelling. Its present condition is essential, but so is the history of occupation and alteration. A recently damaged family home may present a stronger Mudan risk than a former office whose residential features were removed decades ago.
Second, identify precisely what work is needed. Is it repair or renovation of an existing dwelling, or conversion of premises that have ceased to function as one? Contemporaneous structural surveys, dated photographs, services reports, plans and realistic programmes will be more persuasive than an unsupported assertion that a property is “uninhabitable”.
Third, examine the planning and public records. Authorised use, restrictions, EPCs and non-domestic rating can support the picture, but they must be reconciled with the building itself. Marketing material, lender descriptions and earlier tax returns should be addressed where they point the other way.
This is a Scottish First-tier Tribunal ruling. It does not bind an SDLT tribunal in England or Northern Ireland, or decide the Welsh LTT position. The operative Scottish wording is identical to section 116 Finance Act 2003, making its application of Mudan a useful persuasive example. Wales has closely related, but differently framed, statutory language and further specific rules.
The practical lesson is a disciplined analysis of the whole property at the effective date, supported by evidence. Disrepair and lack of immediate occupation are insufficient on their own. Equally, historic residential origins are not permanent proof of residential classification.
The reviewed Bagshaw decision was released on 17 September 2026 after an earlier May decision was set aside. Permission to appeal may be sought, so the procedural position should be checked before relying on the case in a live opinion.
This article is general information, not advice on the facts of any particular transaction.
Disrepair alone does not establish non-residential classification. Bagshaw illustrates the evidence needed where a building has lost its residential identity over time.
Bagshaw judgment: https://www.taxtribunals.scot/decisions/%5B2026%5D%20FTSTC%204.pdf
Mudan judgment: https://caselaw.nationalarchives.gov.uk/ewca/civ/2025/799
Finance Act 2003, section 116: https://www.legislation.gov.uk/ukpga/2003/14/section/116
Land and Buildings Transaction Tax (Scotland) Act 2013, section 59: https://www.legislation.gov.uk/asp/2013/11/section/59
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