Taxpayers being caught out by SDLT repayment promises
The Deputy Director/Head of Stamp Taxes, Business, Assets and International, HMRC, writes to warn of taxpayers being caught out by SDLT repayment promises.
You might think working out the Stamp Duty Land Tax (SDLT) due on a residential property purchase will be simple, and in most cases it is – the tax rate for residential property will clearly apply.
However, we’re finding some tax repayment agents are promising buyers they can persuade HM Revenue and Customs (HMRC) that a house purchase should be charged at the lower, non-residential rates. They do this by finding something in the purchase they claim makes it not entirely residential – a shared garden, a right of way over the land, a ‘wayleave agreement’ or ‘option to purchase’ are some of the ways we’ve seen agents try to do this. It is very unlikely these claims make the purchase ‘mixed residential/non-residential’, and it is misleading for tax repayment agents to say that they do. HMRC has a high success-rate litigating cases where the refund claimed isn’t due.
A tax repayment agent acting on behalf of one purchaser said that the property was chargeable to the lower, non-residential rates because there was a paddock beyond the garden, but Tribunal found that this constituted the grounds of the property. The test in the legislation is that residential property includes the gardens or grounds, not just a garden. Someone else argued a popular footpath across the land meant the property wasn’t entirely residential, but HMRC won the case because the Tribunal said the footpath still formed part of the grounds to the dwelling.
Those who use a tax repayment agent to reclaim or reduce their SDLT bill in this way should be aware that under ‘process now, check later’ rules HMRC can, and does, check claims even after the refund has been made and the agent has received their fee. SDLT is a self-assessed tax, so even when making an amendment to reclaim tax it is the responsibility of the taxpayer to get it right. If the claim is wrong, the taxpayer will be liable to pay 100% of the tax back, including the cut a tax repayment agent may have taken, with interest and may also be charged a penalty of up to 100% of the tax refund they claimed. Using a tax repayment agent doesn’t mean a penalty can’t be charged. Homeowners could find themselves seriously out of pocket.
It’s important to know that HMRC requires these tax repayment agents to meet an acceptable level of standards and behaviour, known as the HMRC Agent Standard. This includes exercising professional competence and due care – the Standard says to “[take] particular care not to include figures in returns or claims which are not sustainable”. An agent who was making speculative claims, particularly given the legal precedents set by the example shown above, could be seen by HMRC to have breached that aspect. There is also a legal requirement for tax repayment agents to be registered for Anti Money Laundering (AML) supervision.
Anyone who has been offered a way to reduce their SDLT bill by claiming part of their property purchase isn’t residential can always check with HMRC first – by visiting the guidance or by contacting the HMRC helpline on 0300 2003 510. If they’ve already paid SDLT and someone approaches them to say they’ve overpaid, we say the best thing to do is check with their original conveyancer first or take independent professional advice.
The Government is consulting on ways to prevent abuse of the SDLT legislation which includes ‘mixed residential/non-residential’ transactions. Views on possible changes to the SDLT regime were invited and a summary of responses to the consultation will be published in the future.
Written by Morris Graham, Deputy Director/Head of Stamp Taxes, Business, Assets and International, HMRC.
Kindly shared by HM Government: HM Revenue & Customs
Main article photo courtesy of Pixabay
