How to tell if you've paid too much stamp duty

By David Hannah, Principal Consultant at Cornerstone Tax

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. But what if you bought property at any price before July 2020? Can you be certain that you paid the right amount of Stamp Duty on your purchase? Might you be due a Stamp Duty Refund? And if so, how do you even go about getting one?

There is no easy answer to the question of whether you may have overpaid your SDLT. With over 30 different exceptions and exemptions covering the type of property, its usage, the circumstances of the buyer and the nature of the purchase (to name a few), there is no one-size-fits-all equation that will instantly give the correct answer.

Examples of factors which may prove relevant in the calculation of Stamp Duty on a property include:

• Land - if the property has land attached to it which is more than a simple garden.
• Mixed Usage - if the property has commercial buildings, agricultural land
• Annexes - many people fail to realise that a 'granny annexe' may qualify a property for relief under certain circumstances
• Any rights or interest over the land that do not benefit the dwelling itself i.e. commons rights to pass through over nearby parkland

If your property has any of these elements, it is very possible that you will have overpaid your Stamp Duty Land Tax and may be due a refund.

Our estimate, based on internal research, is that 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 will not proactively check. The only way to secure a refund of these overpaid monies is to approach HMRC with the correct assessment and seek an alteration of the original return based on the facts of the purchase.

The average overpayment where Multiple Dwelling Relief should have been claimed is about £10-£20,000. Most clients would think this is a significant sum of money. But we often see situations where the completely wrong rate of tax has been applied. In such cases the overpayment can easily £100,000- £150,000 on London properties or property development transactions. This is a lot of money by anyone's standards.

You may think that in order to make sure you didn't overpay your SDLT, you simply need to call HMRC or your solicitor and double check with them. That's where things start to get a little tricky.

There are a number of reasons why solicitors are likely to make errors on many transactions, including relying on the HMRC calculator which doesn't provide a 100% accurate picture on all properties. But solicitors also often simply 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 tax on the property itself rather than the individual, many of them assume it is the same.

Additionally, due to a proliferation of avoidance schemes set up in the early 2010s to take advantage of the increasingly labyrinthine legislation surrounding SDLT, 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 on any purchase, lest it result in unwelcome attention from their regulator.

Calling HMRC introduces a whole other set of problems. HMRC helplines are not manned by people who are experts in SDLT. Or indeed law in general. Simple errors in basic understanding - such as confusing 'civil partnerships' with 'common law partners', can lead to disastrous errors.

One must also remember that in order to assess a purchase for tax, HMRC will have relied on the SDLT return submitted to them, which itself will have been completed by the solicitor. HMRC itself has no knowledge of the property outside of what is provided on this form. Therefore, a purchaser calling them and asking if they 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', because they will consider the property to have been correctly assessed based on the information they have.

In order to firmly establish whether or not the SDLT on a purchase has been correctly assessed, you need an actual tax advisor to examine the details of the transaction - the type of property, the circumstances of the purchaser, the method of purchase, everything.

They will then assess this against the full legislation relevant to the time of purchase, examining each of the various exemptions, exceptions and reliefs and ascertaining which, if any, apply. If any do. Then there must be a full report prepared along with an amended SDLT return, explaining exactly why the original assessment to SDLT was incorrect, what the actual position is, and what the amount of refund due should be.

How do you tell if you've overpaid stamp duty? The same way you'd answer any specialist question - engage an expert and get them to give you the right answer. If you want your property tax properly done, just call Cornerstone.