SDLT – have your clients paid too much?
In December 2014 changes were made to the calculation of stamp duty land tax (SDLT) for residential properties that saw a change from the old ‘slab system’ to an arguably more progressive ‘slice system’, meaning that only purchasers of residential properties worth over £937,500 paid more SDLT under the new rules.
The new ‘slice system’ also created a greater ’Multiple Dwellings relief’ (MDR) saving for high value property purchases than under the old rules. So while the purchase of a £1.5m residential property attracts £93,750 SDLT under the new rules (£75,000 under the old), if the property has an annex (or granny flat/servants quarters etc.) MDR can be applied reducing the SDLT to £55,000.
So the question is, have you recently dealt with a high value property that has 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 SDLT1 filing deadline date (being 14 days after the completion date) to amend the SDLT1 return and apply for a refund. For a transaction completing on 6 December 2019, you have until 20 December 2020 to claim a refund for overpaid SDLT.
To understand if more than one dwelling exists for MDR, 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, so ideally the annex should have its own independent external access.
It is also important to note that the 3% SDLT surcharge for additional dwellings would not apply to an annex unless its value is more than one third of the entire property value including the annex.
If your client receives an SDLT MDR refund letter from an unregulated claims farmer then you and your client should obviously tread carefully, since there is usually no possibility of any redress when dealing with such firms when things inevitably go wrong, as in this recent case - http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11741/TC07783.pdf
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For further advice please contact Justin Bryant at firstname.lastname@example.org or by phone on +44 (0) 20 7429 4141.