Stamp duty refunds: too good to be true?
Experts warn in this guest blog that some claims being made by firms offering help with SDLT refunds are too good to be true, and urge property buyers to exercise independent judgement before making a claim.
This blog was originally published on 20 August 2021. It was previously updated on 12 April 2023 after further tribunal decisions were released and guidance was amended. Claims firms have proliferated and new areas of activity have emerged, so this blog has been updated again.
An increasing number of firms are contacting buyers of properties after completion of a purchase, suggesting that stamp duty land tax (SDLT) has been overpaid. These firms often do nothing else other than offer SDLT reclaims. The most common issues raised are that multiple dwellings relief (MDR) has not been claimed or that the buyer could have paid non-residential rates of SDLT (which are generally lower than residential rates) because the property was a mixture of residential and non-residential land or the property was uninhabitable. Similar issues arise for transactions in Wales and Scotland, which have taxes that are substantially similar to SDLT, but this note only talks to SDLT.
The firms use a variety of approaches, including sending personalised letters to buyers and, increasingly, posting on social media inviting buyers to approach the firm. Firms also aim to increase their credibility by contributing, as “tax experts” to articles in the mainstream media or published “Advertorials” – advertisements formatted as an article.
The firms offer to make a reclaim application with HMRC, usually in return for a percentage of the refund. They often say it is "no success, no fee" and that there is little to lose. Typically their letters will include wording such as:
"We send HMRC a detailed and fully documented claim asking them to review your stamp duty payment."
"HMRC will then review a claim as submitted and should it agree with our conclusions, will refund the overpaid SDLT."
"Any rebates of overpaid SDLT are subject to HMRC’s agreement."
"All rebates come with HMRC formal review and approval."
"You have nothing to lose."
"If we cannot convince HMRC that you have overpaid your stamp duty and are due a refund, there will be no charge to you."
"We also indemnify you against any interest and penalties charges that HMRC could make if the amendments we sought were disallowed."
"There are over 35 tax reliefs on SDLT there's a high chance you're owed a refund"
"You can expect your refund within 6-8 weeks of submitting the claim to HMRC, should your application be accepted."
Some letters claim that they "cooperate with HMRC daily to recover refunds."
Taxpayers who receive these unsolicited approaches might well want to consider the issues raised. SDLT is an extremely complicated tax and sometimes SDLT has indeed been overpaid. As an example, with a purchase of a number of flats, MDR might have been missed. MDR can give a reduction in the SDLT, as it allows multiple use of the lower rate bands of SDLT. In such cases an amendment to the land transaction return can be made within 12 months of completion to claim the relief and a repayment of some of the SDLT. In other cases there can be four years from completion within which to claim “overpayment relief”, though there are some extra complexities for claims outside of the initial 12 months.
In many cases, reclaim opportunities are “sold” without disclosing that they are based on arguments that have been criticised in the courts, who have referred to taxpayers “being persuaded to make unmeritorious claims for repayment of SDLT contrary to the purpose and intention of the statutory provisions”. The promoters rely on the fact that First-tier Tribunal decisions are not binding and are only persuasive. This is even though there have been multiple decisions on substantially similar facts unequivocally rejecting the reclaim arguments.
This blog is intended to throw a light on some of the areas where firms suggest refunds are available and to give guidance on some of the points that need to be considered. Whilst some approaches help people recover tax which was overpaid, HMRC report that they consider some claims for refunds as being “surprising”. In a sample of MDR reclaims, HMRC considered that 40% were contentious. Whilst HMRC will not be correct in all cases, many suggested claims lie within contested areas of law which remain to be clarified through the courts. Despite this, we have seen firms advocating refunds based on contested interpretations of the law with little or no warning as to the risks involved.
Since first publishing this blog, the government have consulted on reform of the rules for mixed-property purchases and multiple dwellings relief, but we still await the outcome of the consultation (even though it closed on 22 February 2022).
2. Process now, check later
Many of the letters and postings we have seen give the impression, at least to the uninitiated, that receiving a refund from HMRC means that the refund claim has been successful. The claims firms do not always make it clear that HMRC operate a “process now, check later" system for amendments to returns; that is, HMRC do not fully consider the claim before making a repayment. This means that receiving a refund does not show that HMRC have approved or agreed the reclaim; they have merely given effect to the taxpayer’s statutory right to change their self-assessment within one year. HMRC updated their guidance on 23 March 2023 and now say the following about refunds and their process now / check later approach:
How to apply for a refund
If you think you’ve overpaid SDLT, you can apply for a refund.
To process refunds quickly, HMRC will make the payment without checking eligibility. We reserve the right not to do so for revenue protection reasons.
This means that even after a repayment has been made, we have not agreed that the refund is due. We have up to 9 months to make a compliance check on your amended return or claim.
If you receive a repayment where the amount you claimed was not due, you must pay it back along with any interest due. If penalties apply, you must also pay them. Read more about penalties.
In addition to the normal 9 month enquiry period, HMRC are also able to make a "discovery assessment" and demand SDLT over a much longer period if they discover that tax has been underpaid. There is a basic period of four years, increased to six years if there was carelessness or to 20 years if the loss of tax was deliberately brought about.
3. Self assessed tax
SDLT is a self-assessed tax, so even when making an amendment to a return, it is the responsibility of the taxpayer to form a reasonable and reasoned opinion of the application of the law to the facts. It is similar to completing an income tax return; the taxpayer is expected to act honestly and not submit a self-assessment which they do not believe to be true. There are risks for claiming a refund when none is due.
It is not usually possible, after completion, to require HMRC to make a decision on the tax liability, although sometimes they decide of their own accord to open an enquiry into an amendment before making a refund. As HMRC say on their sheet "Amendments, refunds and requests for advice after an SDLT return has been submitted":
"SDLT is a self assessed tax. This means that the relevant taxpayer is responsible for making sure they work out and declare the right amount of tax on their SDLT return".
"We can't carry out compliance checks simply because the taxpayer or their agent wants us to confirm that the tax they declared is correct. So unless we decide to carry out a compliance test we can't:
• give advice
• give opinions on the tax treatment of a transaction
• confirm that the return we've received is right"
That puts a burden of responsibility on a taxpayer who wants to claim MDR (or other beneficial tax treatment) either in the original return or by claiming a refund after. Sending HMRC information with the application for a refund does not make HMRC the "judge" of whether the relief or other favourable treatment is due. That means the taxpayer is responsible, even if an agent or other party submits the return or claim.
Although it is generally important to be aware of what the HMRC guidance says, care is needed when relying on HMRC guidance, as this is liable to change and HMRC have sometimes resiled from their guidance in court and tribunal cases.
4. Alternative approach
Generally speaking, if a buyer is considering whether they might have overpaid SDLT, a good starting point is to speak to the conveyancer who handled the transaction for them, or to find a specialist who can give advice.
If there is a good case for seeking a repayment, often the taxpayer can deal with it themselves, or obtain specialist help without having to pay a percentage of the tax saving. A specialist can give impartial advice based on the law and HMRC’s published practice, whereas a claims firm has a conflict of interest: they are financially incentivised to make claims, even claims that are very aggressive.
5 Examples of suggested reclaims
Here are some examples of the kind of approaches we have seen where it is suggested an amendment can be made.
5.1 Multiple dwellings relief
5.1.1 Most common is the suggestion that MDR can be claimed where the property particulars mention the word "annexe" or give an indication that the property contains a granny flat or outbuilding with living accommodation. Buyers can receive letters from more than five claims firms after completion suggesting a refund is due. There are cases where a property includes an annexe that is fully independent and a claim for MDR is valid. However, this is a highly contested area that depends very much on the facts – we have seen many cases in which it has been suggested that there is a separate annexe based on very tenuous arguments.
There are a number of cases where HMRC's refusal to allow the relief has been appealed to the Tribunals. So far HMRC have won all of the cases. The decisions of the Tribunals provide a useful guide as to how independent different parts of a property need to be in order to count as more than one dwelling. Some guidance can be found in the Upper Tier Tribunal cases of Fiander and Brower v HMRC and Doe v HMRC. The most recent First-tier Tribunal case is the Ralph decision.
HMRC have given guidance on how to assess the number of dwellings in the Manual starting from page SDLTM00410.
5.1.2 When land has been bought with planning permission to build houses, or there are permitted development rights for an existing building to be converted to flats, some claims firms say that it is possible for MDR to be claimed even though physical work had not started by the date of completion of the purchase.
The legal basis for this argument has been rejected in the lead appeal decisions of Ladson Preston Ltd and AKA Developments Greenview Ltd decided by the Upper Tribunal on 17 November 2022. A Court of Appeal judge refused permission to appeal, in an Order sealed on 26 June 2023, agreeing that there needs to be a "physical manifestation" of construction. The Order describes as "hopeless" the argument that work done after the moment of completion is relevant.
HMRC confirm their view that physical works are needed at SDLTM00400.
5.1.3 Some claims firms draw attention to the rule that where MDR is claimed for a "mixed property", the 3% surcharge for additional properties should not apply. This was not always well understood and may have been missed. ("Mixed property" here refers to a property which includes a mixture of what the SDLT legislation defines as "residential property" and "non-residential property").
|HMRC now accept this analysis in cases where the non-residential element is neither negligible nor artificially contrived and confirm this in the Manual at SDLTM09740.|
However, we have seen claims where the basis for claiming that the property includes non-residential property is highly tenuous (see below on mixed property treatment).
5.2 Mixed property treatment or non-residential property
The rates of SDLT for non-residential or mixed property are generally lower than for residential property, with the difference being more pronounced for higher value properties, or where the 3% extra SDLT would apply to a residential purchase. We have seen claims that a property is mixed or non-residential based on minimal non-residential use – we give some examples below.
5.2.1 Some claims firms argue that mixed property treatment can apply where there was a prior option or reservation agreement for the property (common in respect of new build properties).
HMRC do not agree this analysis as is clear from their Manual at SDLTM01300. The High Court has also made critical remarks on the argument made by the claims firms, albeit without needing to determine the issue.
The lead cases of Landmaster Investment Ltd and Al Zoebi were decided by the First Tier Tribunal on 3 August 2023. The Tribunal held that the reservation agreements did not amount to "options" nor “rights of pre-emption” and even if they had, they would not have made the purchase taxable at the lower mixed property rates.
On the facts of the Landmaster case, the reservation agreements were not contrived (the properties were new builds); however, the High Court case included anecdotal evidence suggesting that, where the arrangements were being promoted by a scheme provider, the scheme provider offered to draft the reservation agreements.
First Tier Tribunal decisions are not binding on other Tribunals and so there remains a risk that scheme providers may continue to market arrangements involving reservation agreements, persuading buyers to self-assess on the basis that the arrangement works. Any buyer using such a scheme is taking a high risk of challenge by HMRC, with subsequent interest and penalties if a Tribunal finds against the buyer.
5.2.2 It seems that some claims firms obtain details of properties sold with a right to use a communal garden and buyers are contacted and told a refund might be due.
The arguments for mixed property treatment here appear to be highly dubious, as is shown by the strength of the Tribunal judgments and any buyer self-assessing on this basis faces a significant risk of penalties for incorrect returns.
5.2.3 Another angle taken by claims firms is that there is something about the property which means the property is not wholly residential, such as:
- The property has woodland, paddocks or fields with it.
- There is an overflying electricity cable.
- There is a public right of way across the property.
- Access is gained to the property over non-residential property.
The definition of "residential property" is a wide one, bringing in the "garden or grounds" of a dwelling. HMRC have issued guidance on what counts as "garden or grounds" in the Manual starting from SDLTM00440.
There have been a number of Tribunal cases on the issue, most of which HMRC have won. The leading case is the Upper Tier Tribunal decision in the combined appeals in Hyman Pensfold and Goodfellow and the Court of Appeal decision in Hyman and Goodfellow of 17 February 2022 on a narrower issue.
A case HMRC lost at First Tier Tribunal is the Withers case of 25 November 2022. Farmland actively used in a business meant that the property was not wholly residential.
The First Tier Tribunal on 14 March 2023 in the Faiers case rejected the argument that an electricity pole in the garden of a house with high voltage cables overflying made the property not entirely residential.
The Upper Tribunal decision of 30 March 2023 in The How Development 1 Ltd rejected an argument that woodland with the property made it count as mixed residential and non-residential property.
Based on case law, a lease / tenancy granted by the buyer after the moment of completion does not appear to be relevant to the question of whether a property counts as mixed property. This view is supported strongly by the Court of Appeal order in the Ladson Preston case, albeit that a view to the contrary was expressed in the First Tier Tribunal in the Suterwalla decision (although this view did not affect the result). HMRC updated their guidance at SDLTM00360 and SDLTM00450 in September 2023 to explain their view is that the test as to the nature of the property has to be applied at the time of the land transaction, rather than on the effective date of the transaction.
5.2.4 A building which is so derelict as not to be "suitable for use as a dwelling" might benefit from the lower rates of SDLT applicable to non-residential property. This follows a Tribunal decision in the P N Bewley Ltd case where a property could not reasonably be repaired, but required rebuilding.
HMRC deal with the issue in their Manual at SDLTM00385 It is clear that their view is that very few properties are so derelict as not to count as a dwelling.
See also the decision of the First Tier Tribunal in Fish Homes Ltd v HMRC which held that a flat with defective cladding was a "dwelling" and the discussion of the issue by the Upper Tribunal in Fiander and Brower.
The First Tier Tribunal addressed the issue in Mudan on 28 March 2023 saying that a property could count as residential even if, in its condition at completion, it would have been dangerous to live in. It did not matter that a property, which had recently been used as a dwelling, was not ready for immediate occupation, unless the problems went beyond a need for repair.
The decision of the First Tier Tribunal of 31 August 2023 in Henderson suggests that very few properties will be derelict enough to count as non-residential. It is noteworthy that the judges were keen to have their decision published more quickly than usual, saying:
"We consider it important that there be a further published decision on this issue in order to protect taxpayers such as the Appellant from being persuaded to make unmeritorious claims for repayment of SDLT contrary to the purpose and intention of the statutory provisions."
5.2.5 We have seen a claims firm arguing on grounds which appear to have no reasonable basis that a property bought as a Furnished Holiday Let or Airbnb, can count as non-residential property. They seem to disregard the fact that a property "suitable for use as a dwelling" counts as residential property. Instead they have weak arguments:
(a) If the property has an office for keeping paperwork, that deems it to be mixed property.
(b) If a holiday home is available for letting at least 105 days then it does not count as residential property.
(c) If the rental period surpasses 140 days annually, then business rates will apply and this renders the transaction commercial.
5.3 Fixtures, Fittings and Chattels
Several firms write to buyers of high value properties suggesting that a large sum could be apportioned to fixtures, fittings and chattels and that up to 15% of the SDLT could be reclaimed.
A letter contained these misleading comments: "Stamp duty is only paid on land and buildings, not on fittings." "If you didn't deduct the fittings, or you used their secondhand value, you probably paid too much stamp duty".
The term "fittings" can encompass a wide range of items ranging from loose items of furniture to fittings that are built into the property. Once a "fitting" is affixed to the property, it is likely that it will be treated as part of the property and subject to SDLT.
However, if the purchase price was not inclusive of contents a reclaim cannot be made. The price reported at the Land Registry and the price in the SDLT return should usually be the same.
It is true that a reasonable sum apportioned to "chattels" (generally loose items) does properly escape SDLT, but this is not the case for fixtures.
The issues were considered in the 2012 Tribunal case of Orsman v HMRC
See also HMRC's Manual at SDLTM04010. HMRC updated this Manual page on 17 March 2023 to say that they would usually expect the apportionment to be based on market value, allowing for the age, quality and condition of each item, though this approach is not a fair reflection of what was said in Orsman.
6. Transfers from partnerships to SIPPs
There are complicated technical issues around purchases by Self-Invested Personal Pensions (SIPPs) of properties from their members. Where the members hold the property as partnership property, in some cases there may be a potential argument that the special SDLT partnership rules apply, which could reduce the chargeable consideration.
However, there are two significant issues that need to be considered before this treatment can be claimed. The first issue is the question of whether the trustees of SIPPs are "connected persons" with the members of the SIPP, which requires a SIPP to be considered as being a settlement. This partly depends on which definition of "settlement" one uses when applying the “connected persons” test as the definition of “settlement” for the purposes of SDLT is potentially wider than that for other taxes. HMRC indicate that they do not consider that a SIPP is a settlement for income tax / CGT purposes but have not said whether they take the same view for SDLT purposes. This remains a moot point and may depend on the drafting of the documentation that established the SIPP.
The second issue is in establishing whether property is a partnership property. Not all jointly owned commercially let property is partnership property. Legislation provides that joint ownership "does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof". Whether there is a partnership will depend on a wide range of factors, including sufficient activity for there to be a “business”. Useful evidence of a partnership includes having a partnership deed, property partnership accounts (with capital and income accounts), registration of the partnership with HMRC and a consistent "holding out" of the business as a partnership. The issues were addressed in the SC Properties Ltd case. It should be noted that registration as a partnership for VAT purposes does not mean that HMRC accept that property is owned by a partnership – we understand that HMRC use the VAT partnership registration as an administrative process for VAT registering co-owned investment property even when not held by a partnership.
A separate assertion that land not owned by a partnership, but used by a partnership informally, is "partnership property", is controversial. Whilst it is understood that HMRC may previously have been prepared to consider that this may be the case, they now say the opposite.
We understand that claims have been made that, where property is transferred into a multi-member SIPP, the SIPP itself should be treated as a partnership such that the partnership rules apply to reduce the chargeable consideration and SDLT payable. As noted above, not all jointly owned commercially let property is partnership property and a SIPP, on its own, is unlikely to be a partnership in its own right.
Statements that such reclaims are certainly correct or have been accepted by HMRC many times are likely to be exaggerated and we would recommend treating them with caution.
7. Other areas of activity
We have seen signs of claims firms trying other angles.
7.1 Student accommodation
There is interest in a class of "residential accommodation for students", other than student halls of residence. This class is favoured for SDLT; it is not subject to the extra 3% for additional properties, but can benefit from multiple dwellings relief.
There are some grey areas here (the legislation is not as clear as it might be) on which some claims firms are focussing. The HMRC guidance at SDLTM00377 says that for accommodation to come within this class, there must "be an obligation for all residents to be students" . This would often be a planning law obligation.
Some claims firms seem to disregard the nuances here and say that the more favourable treatment can apply to any property occupied by students.
7.2 Property bought from probate
Some claims firms appear to be playing fast and loose with the exemption from SDLT for property traders buying a property from personal representatives (the relief is explained in the guidance at SDLTM21040). They conveniently overlook the point that the relief is limited to "property traders"; usually a limited company which carries out the business of buying and selling properties.
8. Links to related blogs
HMRC press release of 30 May 2022: https://www.gov.uk/government/news/new-homeowners-warned-over-tax-refund-claims
Law Society first feature of 28 November 2022: https://www.lawsociety.org.uk/topics/property/companies-encouraging-buyers-to-make-unfounded-claims-for-sdlt-refunds where Morris Graham and Warren Gordon set out the risks of claims for mixed property treatment and multiple dwellings relief.
Patrick Cannon's blog of 14 February 2023, also called "Stamp duty refunds: Too good to be true?": https://www.patrickcannon.net/news/stamp-duty-refunds-too-good-to-be-true/
Dan Neidle published a follow up summary to a report on issues landlords face when incorporating a property portfolio entitled "What can landlords do about section 24?" It has a useful section headed "How do I spot the cowboys?"
9. Quote from HMRC
Asked to comment on this updated blog, Morris Graham Deputy Director/Head of Stamp Taxes at HMRC said:
“HMRC has seen some very surprising claims for repayment of overpaid SDLT, often made by agents acting for people who bought their property some time ago.
HMRC is concerned about misleading advertisements and promotional material from claims firms which often don’t give the full facts. Statements made by claims firms that indicate HMRC has ‘agreed’ to repayment claims or clearance requests, or that boast of a high ‘success rate’ should be treated with caution.
When people amend their return to claim a tax refund, it does not mean HMRC agrees that the refund is due. ‘Process now, check later’ procedures mean HMRC can, and does, check claims even after the refund has been made and the agent has received their fee.
HMRC makes full use of its compliance powers to challenge claims. Where the claim is wrong, the purchaser is not only liable to pay back all the tax that was refunded, with interest, they may also have to pay a penalty of up to 100% of the tax refund. HMRC has a very high success-rate in litigating questionable claims made by claims firms.”
SDLT is complicated and sometimes reliefs are overlooked, so it can be worth revisiting transactions.
However, many unsolicited approaches are indeed "too good to be true" and responsible taxpayers should act with caution and check independently whether a refund is due.
The suggested fee arrangements can also seem attractive as it appears that the claims are made on a "no win – no fee" basis. But it is important to remember that receiving a refund is not necessarily a "win" – as HMRC may revisit the claim and deny that it was valid. In these circumstances, the fee may already have been paid. There have been cases of claims firms going out of business so that their "guarantees" turn out not to be of value and the insurance they promised to put into place not living up to expectations
Guest blog by John Shallcross (Associate at Blake Morgan), Leigh Sayliss (Partner at Memery Crystal) and Sean Randall (Partner at Blick Rothenberg)