HMRC told a “fundamental review” of SDLT is needed

HMRC told a “fundamental review” of SDLT is needed

In November 2021, HM Revenue and Customs (HMRC) published its consultation on reforming stamp duty land tax (SDLT). The consultation highlighted issues with SDLT which, along with the planned changes, have caused The Institute of Chartered Accountants (ICAEW) to call for a “fundamental review” of the code, with The Chartered Institute of Taxation (CIOT) also voicing its concerns.

HMRC’s consultation had the primary aim of cracking down on SDLT abuse. One way this occurs is through the purchase of mixed-use property. The SDLT rates are lower for non-residential property, so purchasers claim the property has both residential and non-residential uses, therefore the whole purchase benefits from the lower rate. The other way this typically occurs is through incorrectly claiming multiple dwellings relief (MDR) on properties with a house and an annex.

HMRC’s consultation has, therefore, outlined potential reforms of MDR and the way SDLT is calculated for purchases of mixed property. For the latter, they suggest it would be more equitable to apportion the differing rates of SDLT for each portion of a property according to its use.

According to the ICAEW, this consultation serves to show that the SDLT code has become “increasingly complicated”. The Institute said in their response:

Competing policy objectives have added new surcharges, altered rates, or added reliefs without taking a holistic review of the operation of the tax.”

The response goes on to highlight that “the mischiefs the consultation seeks to address are legitimate ways [in which] the rules currently operate”, and that the SDLT rules refer to the term “dwelling”, yet there is no statutory definition of this term.

The ICAEW continued:

The way that the rules interact and the lack of clarity of definitions has led to the unfortunate situation that some reclaim agents have sought to exploit fact patterns that support easily repeatable claims. Many of these claims will be valid as this is what the rules currently allow.”

On HMRC’s plans to apportion mixed properties, the ICAEW said:

While ICAEW agrees that this would improve the fairness in the way the rules operate, it is concerned that the methodology suggested by HMRC in the consultation is unfair and should be revisited.

This is because the calculation methods proposed by HMRC operate differently for purchases of multiple dwellings alongside non-residential property, compared to the purchase of a single dwelling together with non-residential property.”

These issues are part of the ICAEW’s view that the system needs to be reviewed with a more holistic approach:

There are many more situations where the SDLT rules operate in an unexpectedly unfair manner for certain taxpayers. If HMRC is seeking to fix unfairness in the system, these issues should also be reviewed. The implementation date for SDLT was 1 December 2003. As we approach the end of its second decade, ICAEW suggests that a fundamental review of the tax should be undertaken.”

SDLT is also unpopular with homeowners and homebuyers: 58% believe Stamp Duty Land Tax (SDLT) is an outdated form of taxation in need of reform.

Marc Selby, Chair of CIOT’s Property Taxes Committee, shared his views, adding that HMRC’s plans would extend the already-lengthy homebuying process:

This proposal is a workable solution to stop people classifying their transactions as mixed-use when what they are buying is really a residential property, but it has significant drawbacks.

Apportionment will add more stages into a calculation that is already a complicated area of tax law, especially for conveyancers, most of whom are not tax experts.

The need for a valuation would extend to more transactions than currently required, potentially adding costs and compliance risk given the inherent uncertainty in valuation and extending the time for completing purchases.”

Selby continued:

HMRC’s plan will remove unfairness in the system because currently a country estate could pay a lower rate of SDLT, just because it has some small commercial element, than a three-bedroom semi-detached property in London.

But the problem is that HMRC’s proposed method of apportionment brings in other types of unfairness resulting in a disproportionately high SDLT cost for a relatively low value residential property bought with commercial property, say a valuable farm with a modest house or an office block with a caretaker’s flat.”

On MDR reform, Selby said:

We understand the need to counter claims being made by firms offering help with SDLT refunds which turn out too good to be true for property buyers.

The unreasonable claims seen by HMRC are confined to non-business purchases. This suggests one of HMRC’s options of changing the rules such that a separate area of a main dwelling does not count as another dwelling unless its value is a third or more of the total price could meet the Government’s objective without the need to change the rules for business purchases.

We would welcome an evaluation of the efficacy of MDR overall as part of the consultation process on any proposed changes.”

The full consultation on SDLT is available here.

Jamie Lennox, Editor, Today's Conveyancer

Editor of Today's Conveyancer, Today's Wills and Probate, and Today's Family Lawyer Contact LinkedIn Twitter Email

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