Stamp Duty is one of most used but least familiar taxes that Conveyancers face. These are some common questions which legal advisers ask themselves on a frequent basis:
- When should it, and shouldn’t it, be claimed?
- How is it calculated and how do I ensure I get it right?
- How do I protect my practice from claims when its missed or miscalculated?
The problem is, as conveyancing practitioners you’re not tax experts and you often rely on HM Revenue and Customs’ (HMRC) Stamp Duty calculator (or a version of its logic embedded in your Case Management System) – a calculator which the Revenue themselves have admitted is intended merely “as a guide” rather than as a full-fledged final arbiter of the amount to be paid.
The calculators logic has flaws, meaning that if a purchase is eligible for any one of the (currently) 49 exceptions, exemptions and reliefs – Multiple Dwellings Relief (MDR) included. It misses them and gives a false sense of security to someone relying on it.
After all, it is HMRC so it must be right? Yes? NO….
A time for change:
The prime motivation behind the creation of Compass was the lack of accuracy and the inadequacy of detail in the questions within the HMRC Calculator.
By designing a bespoke system, using collaboration between tax and legal experts, we were able to devise a solution which would calculate the tax correctly first time, every time, and refer the case to a specialist where the answer wasn’t immediately clear.
Currently, we estimate about one in 10 purchasers pay the wrong amount of SDLT on their properties, and in recent months it has become clear that one of the biggest areas of missed reliefs relates to Multiple Dwellings Relief or MDR.
MDR was added to the legislation back in 2011, with the express purpose of encouraging investment by landlords and other property investors. It removed a historical disadvantage to these groups that was caused by bulk purchases and/or linked transactions.
This meant that they paid SDLT on the aggregate price of all their units purchased, and this paid more SDLT than any other taxpayer buying a single one.
MDR works by taking the average value of each unit in a multiple property transaction (several properties bought together) and basing the SDLT charge for each property on that average figure that is then multiplied up buy the number of properties purchased.
Thus, MDR removed the disadvantage caused by “aggregation” and brought the tax treatment of these types of purchases more into line with single unit purchases thereby incentivising larger and diverse property purchases.
But, whereas MDR is rarely missed in cases where it is obvious – a developer buying a block of flats or similar – it is rarely considered on smaller, but nonetheless qualifying purchases.
So, in what cases does MDR apply?
MDR may apply, for example, if you buy a property with a separate dwelling house in its grounds – a farmhouse or smallholding with a separate cottage in the grounds or a manor house with a separate workers buildings.
MDR may also apply in cases where a property has a separate “Granny Annexe” – as long as the place where elderly relatives are living is its own separate dwelling, with its own entrance and facilities, then it may well qualify the purchase as a whole for an MDR claim.
In the past 18 months, as more people have become aware of how often this relief is missed, more and more claims have been made against solicitors by clients who have overpaid their stamp duty because of this error. It is now one of the biggest causes of claims against property law firms in the UK.
Compass can help with this because, based on a relatively few (well, a few more than HMRC’s “calculator”) fact-based questions, it calculates the MDR, gives you a certified PI-backed calculation, an audit trial to put on your file and, if it thinks there is an issue, warns you that more detailed advice is needed.
All in all, it points you – the conveyancer – to a route to getting SDLT right first time, on our PI risk not yours, and with all the records you need to meet your CQS or other regulatory requirements.
To find out more, contact us:
This article was submitted to be published by SDLT Compass as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.