SDLT refunds: companies encouraging buyers to make unfounded claims

After purchasing property, buyer clients can be contacted by companies claiming they can obtain a refund of part of the SDLT already paid to HM Revenue and Customs (HMRC).

These companies usually tell the buyer that they either:

• are entitled to multiple dwellings relief, or
• only need to pay the lower commercial rates because of some aspect of the property

SDLT is a complex tax.

Buyers may well wish to review whether they’ve paid the correct amount of tax – although the optimum time is before exchange of contracts rather than post-completion.

Sometimes these approaches take place on spurious grounds or on the basis of a rationale already being contested by HMRC through the courts.

HMRC processes claims for repayments quickly, almost as an automatic process. It does not make its considered assessment of the application until some time later.

This can mean that HMRC may later ask the buyer client to repay the reclaimed tax with interest at a time when the company making the claim no longer exists or has disappeared.

The buyer client could also be asked to pay a penalty of up to 100% of the tax refund.

This can leave buyers in a worse position than if they had not made a refund claim at all.

Below, we set out examples of the kinds of claims buyers can be encouraged to make that are unlikely to be valid.

HMRC case studies

‘Mixed-use transaction’

Adeline purchased a five-bedroom detached house in the countryside in September 2019. The house has several acres of ornately landscaped land.

Adeline’s solicitor advised her that she purchased a residential property and should pay the residential SDLT rate. The house cost £1,750,000 and she paid £123,750 in SDLT.

After the purchase, Adeline received a letter from Stamp-Experts saying they thought she may have paid too much SDLT and she may be able to get her money back.

Stamp-Experts tell Adeline that because a public footpath runs over part of her land, she doesn’t need to pay residential rates because that part is non-residential – they call it a ‘mixed transaction’.

They tell Adeline she should’ve paid £77,000 in SDLT and could get a refund of £46,750. They say they have helped other cases like this and secured a refund from HMRC.

Adeline agrees to let Stamp-Experts act as her SDLT agent. They write to HMRC in November 2019 to amend her return and request a repayment, saying the property was a mix of residential and non-residential land.

HMRC refunds the £46,750 as Stamp-Experts have made a valid amendment. HMRC has not conducted any detailed checks into the reason for the refund.

As HMRC operates a ‘process now, check later’ system, they open a check into Adeline’s return in December 2019.

HMRC concludes Adeline purchased a residential property and the refund was not due. Stamp-Experts had incorrectly advised Adeline about the impact of the public footpath.

In fact, Stamp-Experts hadn’t informed Adeline that:

• HMRC guidance suggests rights of way (such as public footpaths) will not make a transaction ‘mixed’, nor
• in the other similar cases, HMRC opened checks and requested the refunded money back

Adeline must pay the £46,750 back with additional interest and, because Stamp-Experts took their fee as soon as the money was refunded, she is worse off.

HMRC will also consider whether Adeline receives a penalty, which can be up to 100% of the refund given.

Having an agent act on her behalf does not stop the possibility of being charged a penalty because SDLT is a self-assessed tax.

‘Multiple dwellings relief’

John purchased a five-bedroom London townhouse in March 2019.

John’s solicitor advised him to pay the residential SDLT rate. The house was purchased for £2,350,000 and he paid £195,750 in SDLT.

After moving in, John’s neighbour told him about paylessSDLT.co.uk, an agent they used to claim a refund on their SDLT the previous year.

John’s neighbour explained that because their house had an ‘internal annex’ with a bedroom and ensuite bathroom, the agent claimed multiple dwellings relief (MDR) and a refund of over £60,000.

John’s house has a similar layout. The basement has a bedroom with a bathroom and small utility area. There is a separate entrance from the garden and a staircase links the basement to the ground floor.

The remaining three floors feature four bedrooms, two reception rooms, a kitchen/family room and several bathrooms.

John contacts paylessSDLT, who tell him the basement ‘annex’ is a separate dwelling and he’s entitled to MDR.

PaylessSDLT tell John they’ve dealt with hundreds of similar cases and can obtain a refund of £73,350, less their 20% fee.

John decides to authorise paylessSDLT as his agent, as the money will help with renovating the house.

PaylessSDLT writes to HMRC in May 2019 to amend the original return, making a claim for MDR. Three weeks later, John receives the repayment.

In November 2019, HMRC tells John explaining they’re checking the amendment. When John calls HMRC, the caseworker explains HMRC operates on a ‘process now, check later’ basis and can open compliance checks after a repayment.

In early 2020, HMRC writes to explain to John that:

• the basement annex didn’t provide all the facilities needed for basic domestic living needs, and
• an objective observer would see the property as one, not two genuinely independent dwellings

HMRC highlighted several tribunal decisions where the courts agreed. The letter explains that because John acquired one dwelling, MDR is not due and the original SDLT rate was correct.

John receives a tax bill for £73,250 with additional interest.

HMRC is also considering charging a penalty, which could be up to 100% of the tax due if John is found to have acted carelessly or deliberately.

HMRC explains that even though John used an agent, it was his responsibility to make sure he paid the right tax.

John is now out of pocket. PaylessSDLT have taken their 20% fee and John is liable for repaying the tax, interest and penalties – not his agent.

How can I protect my clients?

You may want to let your buyer clients know that they could be approached by these types of companies and let them know the context.

It is obviously attractive to people to be told that they can receive a repayment of some tax paid.

However, if buyer clients are aware of the potential risks before they’re approached, it may help them to resist being encouraged to make claims unlikely to be deserving of repayment – and from paying for this (often incorrect) information.

If you can tell your buyer clients about the risks of making unfounded claims for SDLT refunds and the importance of exercising independent judgement, it should prove helpful to them.

We’re aware that some firms have been making these approaches for some time.

Finding more permanent solutions

To identify a longer term and more permanent solution to this problem, the government consulted on making the SDLT system fairer and reducing the scope for misuse and incorrect claims.

The consultation invited views on possible changes to two areas of the SDLT regime:

• changes to the way SDLT is calculated for purchases of mixed property (purchases that consist both of residential and non-residential property)
• options to reform multiple dwellings relief, available on the purchase of two or more dwellings

You may want to share the following information about these proposals with your clients:

• HMRC: new homeowners warned over tax refund claims
• Chartered Institute of Taxation: stamp duty refunds: too good to be true?

The aim is to encourage buyer clients to think more carefully about claiming reliefs if they’re approached by agents saying they can secure an SDLT refund on their property purchase.