SDLT – have your clients paid too much?
In December 2014, changes were announced to the calculation of stamp duty land tax (SDLT) for residential properties that saw a move away from the old ‘slab system’ to an arguably more progressive ‘slice system’. While this means that most residential purchasers will now pay less SDLT, purchasers of properties over £937,500 will now pay more under the new rules.
The new ‘slice system’ also modifies the way in which SDLT is calculated when claiming ’Multiple Dwellings relief’. So while the purchase of a £1.5m property would attract SDLT of £93,750 under the new rules (£75,000 under the old), if the property is found to have an annex the multiple dwellings principle can be applied reducing the SDLT to £55,000.
So the question is, have you recently dealt with a high value property that could potentially have had an annex? If so, SDLT is likely to have been overpaid by your client potentially exposing you to a professional indemnity issue.
The good news is that there is 12 months from the filing date (filing date is within 30 days of the date of the transaction), or effectively 13 months from the transaction date to amend a SDLT return and apply for a refund. For a transaction dated 1 April 2015, you have until 1 May 2016 to claim a refund for over paid SDLT.
To understand if more then one dwelling exists, it is important to note the HMRC guidance definition of a dwelling:
For the purposes of the relief a “dwelling” means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use.
Land that is, or is to be, occupied or enjoyed with the dwelling such as a garden or grounds (including any building or structure on such land) is taken to be part of the dwelling. This will usually be a question of fact depending on the individual circumstances of each case.
Land that subsists, or is to subsist, or the benefit of the dwelling is taken to be part of the dwelling. This applies to an interest in land which is not contiguous with the dwelling and its garden or grounds: for example, a separate lease of a garage in a block.
FA03/S116(2)-(5) apply to determine whether certain types of property are or are not dwellings.
It is normally assumed that to be suitable for use as a single dwelling, there must be access that is particular to that dwelling.
It is also important to note that while the recent Finance Bill implied that the higher rates of stamp duty for additional properties would apply to any annex, David Gauke, the financial secretary to the Treasury, told the House of Commons:
“I have been made aware that the Bill as drafted might lead to some main houses with an annex for older relatives attracting the higher rates of SDLT intended to apply to additional properties.
“I am happy to reassure the House that that is not our intention and the government will table an amendment in Committee to correct the error and ensure fair treatment for annexes”
It remains to be seen how this ‘fair treatment’ will materialise in the Finance Act in July, however, it is currently thought that the rules that applied up to and including 31 March 2016 will continue going forward so that spotting a case where there are multiple dwellings remains potentially important.
For further advice on the topics discussed in this article, please speak to your usual MHA MacIntyre Hudson advisor or contact us here.