How to tell if you’ve overpaid on Stamp Duty Land Tax

Posted 17th February 2022 by ctatax-admin

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?

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 covering the type of property, its use, its habitability, 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.

You may think that this is something which your solicitor can be relied upon to have dealt with correctly – 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.

The issue here is twofold –

First – Your solicitor, like you, is most likely to have relied on HMRC’s own online Stamp Duty Land Tax calculator (or one that uses HMRC approved programming) to arrive at the tax figure. The issue here is that this calculator – described by HMRC themselves as intended merely as ‘a guide’ – is not equipped to deal with the various reliefs and exemptions that may apply to any given property.

Second, and you may not realise this –  that the SDLT Return he/she prepared is a “self-assessment” Tax Return, and the responsibility for its accuracy lies with you as the purchaser.  How many of us are told this when we are asked to sign it?

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, etc.  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, it is very possible that you will have overpaid your Stamp Duty Land Tax and may be due a refund. SDLT Refunds is a Division of Cornerstone

There is also the matter of the various and constant updates made to the legislation, not the least of which was 2016’s Additional Property Surcharge, designed to act as a brake on investors snapping up smaller properties and free these up for the first time buyer market.

The way in which this change was implemented left many solicitors utterly baffled as to whether their clients would be liable or not. We heard of many buyers having to take out loans at short notice to cover SDLT liability they only became aware of post-exchange of contracts, and many others who paid the surcharge when they were not required to.

Read our article in Financial Reporter about homeowners taking out emergency loans to pay Stamp Duty Land Tax

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 does 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.

You may think then, 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….

We’ve already covered the basic reasons why solicitors are likely to make errors on many transactions, relying on the HMRC calculator which doesn’t provide a 100% accurate picture on all properties. But there is more to consider than simply reliance on an imperfect calculator. Solicitors often simply don’t realise the actual complexity of SDLT as it stands.

Read our latest article in The Telegraph about the subject of overpaid Stamp Duty Land Tax

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. Some even still talk about ‘stamping’ the documents as used to happen under that old system, with physical stamps being applied to the title documents of the property.

Additionally, due to a proliferation of avoidance schemes set up in the Noughties 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.

All this means that calling your solicitor to ask them if there’s any chance you may have overpaid your SDLT and be due a refund is likely to result in a very short negative answer.

Read our Money Age feature regarding the subject of overpaid Stamp Duty

So what of HMRC itself? 

Well, there you have a whole other set of problems. For a start, the HMRC helplines are not manned by people who are experts in SDLT, or indeed law in general.

This was brought home to us quite alarmingly a couple of years ago when we were asked some basic answers to various scenarios around the 3% ‘additional property surcharge’ and whether it would apply by a Journalist. The paper then consulted HMRC for their take on the same scenarios and came back to us to inform us that one of the answers we had given was – according to HMRC – incorrect.

Further examination of the issue in question led to the realisation that the Helpline operator had confused the term ‘civil partnership’ with ‘common-law partner’ – two quite distinct things, and that mistake had led them to the entirely wrong conclusion.

Read: tips on how to negotiate rent with your landlord

As if this wasn’t enough of a barrier, you must also remember that in order 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 itself has no knowledge of the property outside of what is provided on this form. Therefore, you as the purchaser calling them and 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’, because they will consider the property to have been correctly assessed based on the information they have.

In order to establish whether or not the SDLT on a purchase has been correctly assessed, you need to examine the details of the transaction – the type of property, the circumstances of the purchaser, the method of purchase, everything – This is best done by a Stamps Taxes Advisor – and they will assess all of these facts against the legislation, examining each of the various exemptions, exceptions, and reliefs and ascertaining which, if any, apply.

If any do, then a full report must be prepared and submitted to HMRC amending the 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.

The complexity of the legislation, the lack of comprehension of its finer points by most conveyancing solicitors, 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 actual fact, it’s really quite simple, once you accept that this is a tax charged to the individual and not a duty on the property.

Just like you wouldn’t call up your accountant to help you buy a new house, you shouldn’t rely on a solicitor to calculate your taxes. We need to educate people about exactly what SDLT is, what it means, and why it’s a serious bit of tax they need to be aware of 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.

Meanwhile, for those who may have already overpaid, the answer is similar – they must consult a qualified expert tax adviser on the issue, have the whole transaction assessed, and then engage that adviser to help them in recovering any overpaid tax from HMRC in the form of a refund as necessary.

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.