Early advice can prevent costly stamp duty land tax problems

In summary

• Recent budgets and case law have significantly complicated SDLT, introducing various rates, reliefs and categories 
• Many solicitors are now reluctant to offer an opinion on the right rate in anything other than the simplest transactions 
• Taking professional tax advice in advance should ensure you maximise opportunities and avoid any pitfalls, as well as protecting you against penalties  

Angela Rayner did take advice on the tax payable on her property purchase, which HMRC is still investigating, The Times reveals. Unfortunately, it seems to have been only in the lead-up to her resignation.  

The HMRC investigation into whether she underpaid SDLT on the purchase of a £700,000 flat in Hove will focus on whether she took appropriate advice at the time of the purchase. As the Deputy Prime Minister (and Secretary of State for Housing, Communities and Local Government) discovered, however, getting the right advice isn’t always simple.  

Legislation and developing case law in the last five years or so have significantly complicated SDLT. From simply filling in a form as part of the conveyancing process, it’s transformed into a process requiring careful consideration of different rates, reliefs, categorisations and interpretations. 

For the simplest purchases – buying a home when you don’t own any other residential properties or a holiday home with no intent to challenge the 5% surcharge –SDLT should be relatively straightforward. For anything else, buyers badly need professional advice, but conveyancers – wary of the complexities – are increasingly reluctant to make a judgement.  

“Solicitors are increasingly stepping away from providing a view on what the SDLT liability should be on a purchase in anything other than the simplest circumstances,” says Annabel Mason, a Director in the business tax practice at S&W. 

That was evidently part of the problem Rayner faced. As the conveyancer on the purchase said at the time: “We did not and never have given tax or trust advice. It’s something we always refer our clients to an accountant or tax expert for.” 

The SDLT paid, it added, was calculated using HMRC’s online calculator and was “based on the figures and the information provided by Ms Rayner”. 

The benefit of professional advice is that the adviser will ask the relevant questions – not just, for instance, whether the buyer owns any other property, but also if they have established any trusts.  

“The facts in Rayner’s case were actually quite complicated,” says Mason. “It comes down to asking the right questions.” 

It’s not just trusts, of course, that can introduce complications.  

Both previous budgets (though not the most recent), and case law in the last few years, have seen SDLT rapidly evolve. Critical issues often turn on whether property is classed as residential or non-residential, since SDLT for the latter is significantly lower. 

In many cases, it’s easy enough to differentiate; in others, where the property comprises of both residential and non-residential elements (mixed) or small farms and equestrian properties, it’s not.

Stately homes with country plots of perhaps a few dozen acres of land are another example where the rules have become increasingly unclear.

 “Previously, you might have said it was clearly mixed, but, again, recent case law hasn't gone that way,” says Mason. 

In grey areas, professional advice is particularly valuable in managing the risks of getting it wrong, since taking professional advice is likely to mean the client won’t face penalties even if HMRC successfully challenges the position. 

But, as Mason says, it’s not just about avoiding underpayments.  

“We want to help people pay the right amount, and that includes making sure that they're not paying more than they should.” 

It can be particularly important to have advice when it comes to claiming back the 5% surcharge, for instance. There is a three-year time frame for reclaiming the 5% surcharge when a new home is bought before the existing home is sold.  

“We’ve had situations where people have missed out on the reclaim because they haven't done it in time,” warns Mason. In another case a buyer thought they'd trigger the reclaim on the sale of one house, but it was actually triggered on the sale of an earlier property. 

“When the circumstances are complicated and there are multiple properties or different categories, there are many ways you can inadvertently miss out or trip yourself up,” says Mason. 

"Even if you can make a claim later, it’s always preferable to ensure you’re paying the right amount. You want to get it right the first time.” 

With some advice, timing is everything.  

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