The simple guide on how to tell if you’ve overpaid on Stamp Duty Land Tax

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This is an abridged article reproduced with permission of Cornerstone Tax Advisors. The original article can be read in full here.

Stamp Duty Land Tax (or SDLT) has been big news lately, with the Chancellor’s announcement in July of a ‘holiday’ on the tax for all properties of £500,000 or lower purchase price. [NB: and now calls to extend this holiday due to high transaction volumes].

But what if you bought a property at any price before July 2020? Can you be certain that you paid the right amount of Stamp Duty?

Might you be due a Stamp Duty refund, and how do you even go about getting one

First off, there is no easy answer to the question of whether you may have overpaid your SDLT. With over 30 different exceptions and exemptions, there is no one-size-fits-all equation that will instantly give the correct answer. 

You may think that this is something which your solicitor can be relied upon to have dealt with correctly – because, in the vast majority of purchases, a solicitor will indeed supply you with a tax figure and a pre-filled Stamp Duty Return to sign.  

Two problems

First – Your solicitor most likely relied on HMRC’s online Stamp Duty Land Tax calculator to arrive at the tax figure. The issue here is the HMRC say it is intended merely as ‘a guide’ – is not equipped to deal with the various reliefs and exemptions that may apply to any given property.

Second, the SDLT Return your solicitor prepared is a “self-assessment” Tax Return, and the responsibility for its accuracy lies with you as the purchaser. 

Examples of things that may prove relevant in the calculation of Stamp Duty on property include:

  • Annexes – many people fail to realise that a ‘granny annexe’ may qualify a property for relief.
  • Other land – if the property has land attached to it, which is more than a simple garden.
  • Mixed-Use – if the property has or has had commercial activity in its buildings or on its land.
  • Any form of income from the land, e.g. rents, license fees, certain wayleaves - if it gives you taxable income then it will affect the Stamp Duty.
  • Rights or interest over the land that do not benefit the dwelling itself, i.e. commons rights to use nearby parkland (for which you usually pay Rates or a levy)

If your property has any of these elements, you may have overpaid your Stamp Duty.

Confusing legislation

There are also constant updates to legislation, not the least 2016’s Additional Property Surcharge. Designed to act as a brake on investors and free up properties for the first time buyer market, how this change was implemented left many solicitors utterly baffled whether their clients would be liable or not.

We estimate as many as one in five SDLT returns may be being incorrectly completed on property purchases, leading to millions of pounds of overpaid SDLT which HMRC does not proactively check. The only way to secure a refund is to approach HMRC with the correct assessment and seek an alteration of the original return. 

You may think to make sure you didn’t overpay the SDLT you need to call HMRC or your solicitor and double-check with them. That’s where things start to get a little tricky.…

We’ve already covered why solicitors are likely to make errors on many transactions, relying on the HMRC calculator. But there is more to consider than reliance on an imperfect calculator. Solicitors often don’t realise the actual complexity of SDLT as it stands.  

Because it shares a partial name with the old Stamp Duty, which was a broadly simple duty on the title documents itself rather than a tax on the individual, many of them assume that it is the same.

Additionally, due to a proliferation of avoidance schemes set up in the Noughties and the aggressive stance taken on these by HMRC and the Solicitors Regulation Authority, many firms are reluctant to make any more than the most cursory examination of the SDLT situation. 

All this means that calling your solicitor to ask them if you may have overpaid your SDLT is likely to result in a concise negative answer.  

So what of HMRC itself? 

The HMRC helplines are not manned by people who are experts in SDLT, or indeed law in general.

Also, remember to assess your purchase for tax, HMRC will have relied on the SDLT return submitted to them, which itself will have been completed by your solicitor.

HMRC does not know the property outside of what is provided on this form. Therefore, asking if you are likely to have overpaid the SDLT on the property and be due a refund is only ever going to lead to the answer ‘no’. They will consider the property based on the information they have.

To establish whether the SDLT is correct, you need to examine the details of the transaction. A full report must be prepared and submitted to HMRC amending the SDLT return, explaining exactly why the original assessment was incorrect, what the actual position is, and what the amount of refund should be.  

The complexity of the legislation, the lack of comprehension of its finer points, and the lack of decent support from HMRC mean that ensuring your SDLT bill is correct on every purchase may seem like a nightmare. But in fact, it’s quite simple, once you accept that this is a tax charged to the individual and not a duty on the property.

But just like you wouldn’t call up your accountant to help you buy a new house, don’t rely on a solicitor to calculate your taxes.

We need to educate people about exactly what SDLT is and encourage them as a matter, of course, to consult a tax adviser on their SDLT liability so that they can get it right first time.  

For those who may have already overpaid, the answer is similar – consult a qualified expert tax adviser, and then engage that adviser to help them in recovering any overpaid tax from HMRC in the form of a refund as necessary.

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