Buy-to-let tax changes capital gains tax

Property investors may be entitled to stamp duty refunds

HMRC has recently changed its guidance for stamp duty and multiple dwellings relief claims. Could you be entitled to a stamp duty refund?

Last week, HMRC changed its guidance surrounding the 3% stamp duty surcharge on second homes or property investments in the Stamp Duty Land Tax (SDLT) Manual. If an investor purchases a non-residential property or a mixed-use property, the 3% surcharge does not apply. These transactions are instead taxed at the non-residential rates of stamp duty.

When more than one property is bought in the same transaction or within a linked transaction, multiple dwellings relief is available. This can reduce the stamp duty bill. However, when this relief has been claimed on mixed-use property, things have become complicated.

Previously, HMRC issued guidance that was deemed “incorrect” that the additional 3% stamp duty surcharge on second properties also applied to multiple dwellings relief claims for mixed-use purchases, even if the properties were not entirely residential. That guidance has now changed.

In the updated manual, HMRC states the 3% surcharge only applies to the purchase of non-residential or mixed-use land if both of the following conditions are met:

  • multiple dwellings relief is claimed on the residential part of the transaction
  • the non-residential piece of the transaction is “negligible or artificially contrived”.

For many, this is welcome news. However, some in the industry, including law firm Charles Russell Speechlys, feel there needs to be more detailed clarification on HMRC’s interpretation of these terms. We will begin to get a clearer picture once we see HMRC’s treatment of certain circumstances in the tax tribunal.

Overpaid stamp duty

This change in guidance means property investors who have paid the 3% stamp duty surcharge on mixed-use multiple dwellings relief claims may be entitled to stamp duty refunds. Cornerstone Tax has long been upholding that stamp duty should only apply when the transaction consists entirely of residential properties.

Throughout the past few years, there have been several legal cases between Cornerstone Tax and HMRC. This misguidance by the HMRC has led many property developers and investors to have overpaid tax, some by 200%.

As mixed-use developments are on the rise, the change in HMRC’s guidance will likely impact many property investors and developers. Cornerstone Tax says the total bill of stamp duty refunds could come to tens of millions of pounds.

The intricacies of stamp duty

Stamp duty is incredibly complex, and when it comes to property investment, things can become even more complicated. This can lead many investors and developers to overpaying on stamp duty. A number of problems can come up when calculating a stamp duty bill. It can get especially complex when an investor is buying multiple units as one property investment transaction.

Many would have thought the current stamp duty holiday simplified things for the time being, but it has actually complicated it further for investors. Additionally, a short time limit is now put on solicitors and conveyancers as property sales continue to rise. This puts these professionals under added pressure as getting stamp duty right could lead to delays and miscalculations.

If you are looking for advice on stamp duty for your property purchase, our independent tax partners can help. For more information, please get in touch.

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