Stamp Duty Land Tax – the sting in the tail? by Sue Harrison
Stamp Duty Land Tax, Tax Penalties
I’m a busy property solicitor working in a small regional practice and deal with both residential and commercial transactions. As well as endeavouring to keep up to date with all aspects of land law, conveyancing procedures, the ever-growing list of ‘must have’ searches and enquiries, the latest ‘pet’ worry – at the moment escalating leasehold ground rents, anti-money laundering, ‘know’ your client (we only ever carry out arms-length transactions for clients who used to live locally and their families) I’m also meant to be completely au fait with Stamp Duty Land Tax (SDLT), about which very weighty tomes have been written.
Historically we were one of ‘those’ firms who dared to make a separate (modest) charge for completing the SDLT return. But when the recession hit we discovered that other local firms were ‘winning’ our share of business by openly touting the fact that they weren’t one of those firms who had the effrontery to charge for completing the return (something an accountant wouldn’t blink at rendering a bill for). So, reluctantly we had stop making an extra charge and ‘absorb’ the cost in our all-inclusive quote.
I have always completed the returns myself and the other fee earners in the firm do likewise, not passing the responsibility to already over-worked secretaries/PA’s (I know of one solicitor who used to do this!). Whenever I come across an SDLT query that I’ve either never dealt with before or am unsure about, I have contacted HMRC for ‘advice’, but only after I’ve read the online guidance, which, for a non-tax lawyer is often almost impenetrable. It changes all the time with the introduction of certain reliefs (e.g. multiple dwellings relief (MDR)), the removal of others (disadvantaged area relief) the changing of rates (the 15% on companies buying properties worth more than £500,000; the additional 3% surcharge for buy to let and additional properties after 1st April 2016).
I recently had to try to find out what the rate of tax had been when six linked transactions had completed nine years previously. I couldn’t easily find the guidance on-line so I wrote to HMRC thinking it was a simple question that they would respond to by return. They have not yet responded in writing, but after hearing nothing for four weeks, I rang the helpline and was given a reference to HMRC’s SDLT Manual so I could check what the historical rates had been at the time. Whilst on the ‘phone, I asked if I could apply MDR (to try to shrink the tax bill for client). The advisor couldn’t tell me and said that I needed to find that out by writing in for advice before completing the returns because if I didn’t apply the relief on the original submissions, I couldn’t then try to reclaim it if I found out later that it applied. So, once again, I wrote to HMRC for advice. This time I did get a reply but only after calling, emailing and eventually complaining about the time it was taking them to respond and that reply came after nine weeks! The answer was fairly simple in that MDR had been introduced after the transactions completed so was not available.
Then knowing that I could either submit one return or six – one return would be only one late filing penalty but the transactions had been completed the way they had with other (IHT) tax implications in mind, I took advice from Ann Humphrey about which way to proceed and how to complete the forms to which she responded in a couple of days, not months! The returns were submitted and the transactions sent in to the Land Registry for (late) registration. The cost to the solicitor who had a) not realised the transactions were linked and then b) failed to submit them, was thousands of pounds in late filing penalties and interest.
The problems caused by the 3% surcharge on additional properties is huge. We have to research what were previously fairly straightforward transactions and even since its introduction, the surcharge has been amended because it was so ill-thought out. It was catching transactions it was never meant to, such as one member of a divorcing couple purchasing another property before Decree Absolute so they could live separately from each other.
We have had a number of clients who have bought land subject to overage. This meant that they needed to get a deferral decision to help mitigate SDLT interest and penalty charges should the overage be triggered and the value of the property increase in the future. This has involved us (in consultation with clients) ‘guesstimating’ the potential increase in land value and then waiting for weeks and sometimes months for the deferral letter to come through following the request to HMRC for the same, thus holding up the actual purchase. We make sure that clients are aware that if the ‘guess’ is wrong then they could be subject to penalties many years in the future, which is why I say that SDLT could be ‘the sting in the tail’, certainly on these transactions.
I’m not sure how an ordinary practitioner with no specialist knowledge of SDLT is meant to keep up with or understand the complexity of the legislation and, given the difficulties in getting advice, guidance or information from HMRC in a timely manner, if at all, how more genuinely innocent mistakes aren’t made.
Most property purchasers have little understanding of the complexities involved in land law and conveyancing generally and the financial implications for them in mistakes being made, including if SDLT isn’t dealt with properly. This isn’t helped by the unwillingness of many estate agents and mortgage brokers to accept that we’re not raising the queries we do just to make our part bigger but to try to prevent problems for clients’ if/when they come to sell on in the future.
What’s the solution? That’s a biq question and perhaps one I will try to answer another time.
My name is Sue Harrison and I am a Managing Partner for a firm called Bryan and Armstrong Solicitors, based in Mansfield. We offer a number of legal service and I specialise in residential and commercial property transactions. You can contact me via email or on 01623 624505.