The £2bn issue facing property owners
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One of the biggest issues facing property owners today is the overpayment of tax on previous transactions.
Chaired by Yorkshire editor Ben Ormsby, TheBusinessDesk.com hosted a panel sponsored by Cornerstone Tax Advisory to delve into the wide-ranging issue that speakers say conveyancers and solicitors know very little about.
Stamp Duty Land Tax (SDLT) was introduced in 2003, replacing stamp duty. All acquisitions apply, but it is complex due to a range of factors such as; the type of property, the type of purchaser, the nature of the transaction, the number of dwellings owned and the nature of consideration provided.
David Hannah, the principal consultant at Cornerstone, says there is a range of issues with SDLT, but mainly that solicitors and conveyancers don’t have the time or training to understand it.
He said: “Solicitors and conveyancers that do not have the time, or indeed the experience or expertise to fully understand the intricacies of SDLT and the up to 49 exemptions and release which might apply on your transaction.”
Hannah discussed how there has been a 285% rise in stamp duty refunds during lockdown and there is as much as £10b in overpaid tax due to the transfer or sale of properties into pension schemes which should not have been charged SDLT.
He said: “This is a compensation storm waiting to happen. Cornerstone has recovered over £15m in the last 12 months from SDLT overpayments.”
He advises every buyer to get advice pre-completion before a deal has been made, or at post-completion, Cornerstone is able to review to see if SDLT was calculated accurately.
There are specific reliefs for buyers to which give 100% exemption to SDLT. For example, if a property is uninhabitable they do not need to pay the residential surcharge. Therefore one client was refunded £5k.
If you buy a site with permitted development right for conversion, or indeed partial demolition and reconstruction, then you can claim multiple dwellings relief at the moment you acquire the site even though you haven’t started the conversion necessarily. Cornerstone’s client received a refund of £105k.
Another exemption is multiple dwellings relief. Cornerstone’s client has planning permission for demolition and construction along with a communal garden.
Hannah said: “Because the development proposal had been approved, again meant that the land was eligible for multiple dwellings relief. And not only that, it would have been mixed-use so that the client could have enjoyed the minimum rate of MDR of 1%. Not this minimum surcharge rate of 3%.”
They received £67k as a refund.
In addition, “incorporation has been very popular in the private rental sector for the last few years because of a loss of higher rate income tax relief. If you own property jointly, you don’t need to have a formally registered partnership for SDLT purposes. I would stress then you do not pay SDLT on the transfer from that partnership to a connected person, in this case, a limited company.” A refund was received of £18.5k.
Hannah Mackinlay, a commercial property solicitor, lectures on SDLT. She is astonished that many big firms have had no training in SDLT.
She said: “One, finance director of a major London PLC, said that 75% of the tax returns the firm did were wrong.
“I had one estates director of a very large conglomerate, Brewer, bowling clubs, alleys, etc, who said that their finance director had told him that as far as he was aware, there were probably 500 to 1000 different high-value properties where the wrong amount of tax have been paid.”
Alan Forsyth from Hockley Developments, a residential developer in Nottingham says all buyers should be aware of SDLT and consult companies like Cornerstone.
Forsyth said: “We probably transact, maybe five sites a year. The majority already with planning in, and if those sites say in total, cost 3 million pounds, and actually you’ve overpaid by 2%, on the SDLT, then it’s potentially 60,000 overpaid per annum.
“If you’ve been buying that number of sites for five years, that’s a lot of added money. So we’ve been analysing this more closely.”
All panellists agree that the issue arising from SDLT is that it was misleading, as people get confused with the old stamp duty.
The reasons for these errors are many – sometimes it is a simple case of a wrongly classified property type, a missed exemption or relief by a solicitor or financial adviser or a misunderstanding of certain complex situations.
The result is always the same – tens or hundreds or thousands of pounds of tax paid which was never due. It is estimated that over £2b a year is overpaid in tax to HMRC.
Catch up on the full webinar below.