HMRC have recently issued a press release warning tax payers of the risks of making speculative Stamp Duty Land Tax (SDLT) refund claims. New homeowners often receive cold calls from tax agents who operate on a no win, no fee basis.  However, many are unaware that HMRC can sometimes (and indeed often do) raise enquiries into refunds after payment – by which point the agent will have received their fee and the taxpayer may be left to pay any further sums due. If a refund has been issued incorrectly it must be repaid with interest and in some cases penalties may also be charged.

SDLT is a tax on land transactions that applies in England and Northern Ireland. It is a self-assessment tax that most home-owners are familiar with as it is generally payable on purchases of residential property by individuals where the purchase price exceeds £125,000 (although there is no nil rate band if the higher rates for additional properties apply). SDLT on residential property has become increasingly complex over recent years and HMRC’s press release highlights the need for comprehensive property and tax law advice so that buyers can be confident that they are paying the correct amount of tax.

HMRC report that their recent analysis suggests that up to a third of claims for ‘multiple dwelling relief’ (MDR) refunds were incorrect. MDR can reduce the tax liability considerably because the because the rate of SDLT is determined by the average value of the dwellings purchased, rather than their combined value. Purchasers can therefore benefit from multiple nil rate and lower percentage bandings. This relief should therefore always be considered where the features of a particular property are such that it may constitute two (or more) single dwellings, which is a question of fact in each case. HMRC do have a record of successfully challenging incorrect MDR claims in recent Tribunal cases and so it is important to analyse the details of the specific dwelling(s) carefully to assess whether the relief does apply. It is also worth noting that HMRC recently consulted on possible options to reform MDR and the taxation of mixed use properties. That consultation closed on 22 February 2022 and we await HMRC’s response to the feedback received but it seems likely that there will be further changes to SDLT in the future.

HMRC’s warning about potential cold calls also refers to other types of refund including mixed use properties, uninhabitable homes, homes purchased with access to communal gardens and the transfer of residential property to pension schemes. Any potentially relevant reliefs should always be considered at an early stage in the conveyancing process so that the purchaser is clear about how much they will need to pay at completion. This is technical area of law and, whilst we always consider HMRC’s guidance, it is important to analyse the actual law and how the relevant statutory provisions apply to the specific facts of each particular case (both by reference to the unique features of the property itself and the taxpayer’s individual circumstances).