When Deputy Prime Minister, Angela Rayner admitted she had underpaid Stamp Duty Land Tax (SDLT) by £40,000 on her £800,000 seaside flat last week, the headlines wrote themselves.
Rayner has since resigned, but the saga very well highlights why the SDLT legislation is one of the most complex pieces of tax legislation in the UK. If senior politicians, and perhaps their legal teams, might get it wrong, what hope does the average buyer have?
The key point is that conveyancers and solicitors are not SDLT specialists.
Their job is is to handle the legal mechanics of the property transaction, not to unpick obscure deeming provisions hidden in tax law.
Which is why, when property transactions are anything other than routine, buyers should always consider getting specialist SDLT advice.
Why is Stamp Duty Land Tax (SDLT) so complex?
SDLT is so complex because of the way it has evolved as legislation, meaning, that it is ultimately trying to do too many jobs at once.
Constant Rule Changes to SDLT since 2003
Since SDLT was introduced in 2003 to replace Stamp Duty, it has been tinkered with in almost every Budget. Rates, thresholds, reliefs, and surcharges change so often, that even professionals struggle to keep up.
Mutiple SDLT Rates and Surcharges explained
Unlike Income Tax, SDLT applies different regimes depending on the buyer:
Basic residential rates
Additional 3% surcharge for second homes
2% surcharge for non-UK residents
Separate rates for commercial property and mixed-use land
Two buyers paying the same price can face very different bills.
Special Reliefs That Complicate Things Further
Reliefs are meant to make SDLT fairer, but often create new problems:
First-Time Buyer’s Relief
Relief for charities, registered social landlords, or certain corporate restructurings
Each has its own detailed conditions and, in some cases, clawbacks where circumstances change.
The SDLT ‘Deeming Provisions’ Trap
The legislation doesn’t just look at what you actually own. It sometimes “deems” you to own other land interests, like in Angela Rayner’s case, where her son’s trust interest counted against her creating a hidden tax liability.
SDLT and Interaction With Other Property Interests
SDLT looks at more than just the property in front of you:
Linked transactions mean two purchases can be treated as one.
Leasehold purchases require calculating the “net present value” of future rent.
Buying with land might change the category of the property.
SDLT as a Political Tool, Not Just a Tax
Successive governments have used SDLT to influence behaviour – discouraging buy-to-lets, encouraging first-time buyers and taxing overseas purchasers.
Is SDLT reform coming in 2025?
Well there is certainly talk of it, and with the recently announced Autumn budget on 26th November it is suggested that SDLT could be one of the taxes in the firing line.
But what might the government replace it with?
Proposed National Property Tax to replace SDLT
This would involve replacing buyer-paid SDLT with a seller-side levy on owner-occupied homes valued over £500,000, possibly combined with an annual property charge for high-value properties
Mansion Tax and Capital Gains Tax (CGT) on High-Value Homes
An alternative might be to levy a mansion tax or remove the capital gains tax exemption on primary residences worth over £1.5 million
Replacing SDLT and Council Tax with a Unified Property Levy
SDLT and council tax would be replaced with a proportional annual property tax based on current market value.
Whilst the property industry seems to widely support reform, (noting that SDLT is a significant barrier that discourages moving and suppresses transactions) some experts warn that seller-side taxes or annual levies may discourage downsizing or burden retirees.
However, with Chancellor Rachel Reeves facing a projected £20 billion shortfall, she may well find property taxes the most politically and economically palatable option.
What should buyers do now about SDLT?
If and until reform happens, it remains more important than ever to seek specialist SDLT advice if you or your lawyer are in any doubt on the SDLT treatment of your property transaction.
The Solicitors Regulation Authority (SRA) advises solicitors not to give tax advice unless they have specialist knowledge and to flag when expert input might be needed.
Unusual property transactions that need SDLT advice
The SRA also list some of the most common “unusual” circumstances where buyers should consider getting specialist Stamp Duty advice:
Trust connections – for example, where a buyer or family member is a beneficiary of a trust.
Purchases by companies or non-UK residents
Linked transactions
Commercial property acquisitions
Properties with extras – such as paddocks, fields, or outbuildings.
Shared ownership arrangements
New leasehold sales and
Unusual consideration – where the price paid isn’t the same as the SDLT “chargeable consideration.”
Buying a new main residence without selling the old one
These scenarios are more common than they may first appear, and even a small error can result in tens of thousands of pounds of unexpected tax.
Why SDLT operates as a “process now, check later” tax
SDLT is a self-assessed tax. Buyers (through their solicitor/conveyancer) must file an SDLT return and pay the tax within 14 days of completion.
HMRC doesn’t pre-approve calculations. Instead, it relies on the return being filled in correctly.
Most conveyancers use HMRC’s online SDLT calculator, but that tool only produces the right answer if the right information is entered.
Once the SDLT return is filed and the tax paid, HMRC issues the SDLT5 certificate.
That certificate is needed to register the property at the Land Registry.
Crucially, HMRC does not check the correctness of the return before issuing the certificate. If you’ve paid the wrong amount, the transaction still goes through.
HMRC can open an enquiry into an SDLT return within 9 months of filing (the “enquiry window”) or later in cases of careless (4 years) or deliberate (20 years) error.
This “pay now, check later” system means you can complete your purchase and think everything is fine, only for HMRC to come knocking months (or even years) later with a large additional bill, plus interest and penalties.
This is why specialist SDLT advice before completion is so valuable.
Conclusion
Angela Rayner’s £40k SDLT mistake proves that SDLT is anything but simple.
Relying on solicitors or HMRC’s calculator is not enough. Whether you’re buying your first flat, investing through a company, or dealing with trusts, getting expert SDLT advice upfront can save you money, and stress, so, if you, or your solicitor have any queries on SDLT matters, please do get in touch and we would be happy to help.
Alternatively, if you are a property or conveyancing solicitor looking for a specialist tax adviser to refer SDLT queries to, we would be happy to hear from you. Click here to contact us.
Some advisers claim that by taking a series of pre-planned steps, the value of shares in a property company are completely sheltered from Inheritance Tax (IHT).
When something looks too good to be true….
Unfortunately, the reality is that properties held personally, in a trust or in a company will be liable to IHT. Of course with a Labour Budget on 30 October, IHT may be increased. There is also speculation is that the capital gains tax tax-free uplift on death may also be removed, meaning there is effectively a “double death tax”. This could mean that a gain on a buy-to-let property is effectively taxed at just over 54%.
So, what can you do to protect against IHT changes? This will depend on how the properties are held.
Incorporating your property business
If there are a number of properties being run as a business you may consider incorporating the business. Incorporation Relief should be available so that there is no capital gains tax payable and the company takes over the properties at current market value. Stamp Duty Land Tax would however be payable, although this can be reduced by applying commercial rates of SDLT where six or more properties are transferred.
You can then consider gifting shares either outright or into trust to family members. This might trigger a capital gains tax charge but currently the maximum rate of CGT on shares is 20%. The value of the shares gifted will be outside your estate after 7 years.
You can also create growth shares which only participate in future growth in value over a pre-determined hurdle rate. With careful planning HMRC should accept that these shares have little value on issue.
Where properties are owned through an existing partnership, incorporation can take place without SDLT being payable.
Alternatively, you could simply “sell” the properties to your own limited company. Yes, this will create capital gains tax and SDLT liabilities but it would “bank” these at the current rates. It would be necessary to crunch the numbers to calculate what the overall effective tax rate is.
The advantage of this would be that it would create a significant director’s loan account credit. You could immediately gift some or all of this to your children. This would be a Potentially Exempt Transfer (PET) and outside your estate after 7 years. Whilst you have “given away” the loan account (or part of it) your children can only access the funds on your say so.
Forming a property partnership
Forget forming a partnership to incorporate later on. The extensive SDLT anti-avoidance rules mean that on incorporation SDLR relief will not be available.
Instead, it is possible to form a partnership with family members entitled to a future share in the growth in value of the properties. With care, this can be achieved without any tax cost and will mean that the majority of future growth in value falls outside your estate.
Direct gifts of property to your children
You can make outright gifts of property to your children. There will be no SDLT payable but there will be capital gains tax to pay on any increase in value of the property since it was acquired. Any gain would have to be reported to HMRC and the tax paid within 60 days of completion.
Using a family trust
The capital gains tax payable on direct gifts of property may make this option unattractive. As an alternative, you could consider using a trust. The transfer into the trust is a Chargeable Lifetime Transfer, so any transfer of value over £325,000 (£650,000 for a married couple) would incur a lifetime IHT charge at 20%. However, as it’s a gift into trust any capital gain can be held over, meaning that the trust effectively takes over the original base cost of the property.
At a later date the property can be transferred out of the trust to your children and again the gain can be held over. This means that the trust can act as a “stepping stone” to pass properties indirectly to the children without suffering a capital gains tax charge.
I’ll stay on me own…
You can of course opt to do nothing and see what the Budget brings. It may be that nothing changes, although this appears increasingly unlikely.
Next Steps with inheritance tax for landlords
If you want to learn more about sheltering the value of shares in a property from IHT or maybe you are interesting in learning more about making outright gifts of property to your children then get in touch.
CASE REVIEW: SDLT – Non Residential or Residential
Introduction
Stamp Duty Land Tax (SDLT) is a tax imposed on property purchases in the UK, with rates varying based on whether the property is classified as residential or non-residential. Classification ambiguities can easily lead to disputes. Two recent cases highlight these complexities and their respective resolutions.
Overview
In August 2021, Ms. Anne-Marie Hurst purchased a 16th-century manor house in Devon for £1,800,000 and filed her SDLT return under non-residential rates. She argued that the property was used as a ‘hotel or inn or similar establishment’ and noted that a meadow within the grounds was leased commercially for grazing and hay harvesting. HMRC disagreed, issuing a closure notice reclassifying the property as wholly residential, leading to an increase in SDLT of £47,750.
Hotel???
Ms. Hurst, who had previously operated a wedding venue and a wine business, intended to use the manor in a similar capacity. The vendors had upgraded the property to function as a bed-and-breakfast or boutique hotel, offering high-quality accommodation despite COVID-19 restrictions. Ms. Hurst chose not to purchase the business as a going concern but focused on the property’s fixtures and fittings. After the purchase, she converted parts of the house for self-catering accommodations and formalised a commercial lease for the meadow at £500 annually. Upon review by the courts, the taxpayers appeal was allowed on the grounds that the property had been used as a hotel, saving Ms Hurst the additional liability plus interest which HMRC had intended to levy.
Case of Mr. Taher Suterwalla and Mrs. Zahra Suterwalla v HMRC [2024] UT 00188
In the case of Mr. Taher Suterwalla and Mrs. Zahra Suterwalla v HMRC [2024] UT 00188, the Upper Tribunal (UT) upheld the First Tier Tribunal’s (FTT) decision that a paddock was not part of the residential property grounds. The Suterwallas had purchased a house with a tennis court, indoor swimming pool, pavilion, and paddock, letting the paddock out for horse grazing on the day of completion. They filed their SDLT return as non-residential, but HMRC issued a closure notice, reclassifying the paddock as residential and applying the residential SDLT rate.
The FTT ruled in favour of the taxpayers, and the UT upheld this decision, finding the grazing lease irrelevant since it did not exist at the time of purchase and there was no evidence of prior commercial use. The paddock had a distinct title, was not visible from or integral to the house, and did not support the dwelling or other amenities. This decision emphasizes that post-completion use, such as a grazing lease, can still influence the property’s classification at the time of purchase, depending on specific case details.
The complexities of SDLT classifications
Both cases underscore the complexities of SDLT classifications and the significant tax implications tied to property use definitions. They highlight the importance of accurately assessing and documenting property use at the time of purchase, as post-completion arrangements can affect tax outcomes. These rulings provide valuable precedents for understanding how properties with mixed uses may be classified for SDLT purposes.
If you require our support regarding stamp duty land tax please contact us.
Private Residence Relief (PRR) is a tax relief in the UK. PRR helps homeowners save money when selling their primary residence.
Under this relief, any capital gain arising from the sale of a property that has been the taxpayer’s main home throughout the period of ownership is generally exempt from Capital Gains Tax (CGT). This means that if you sell your primary residence, you usually do not have to pay tax on any profit from the sale.
The Private Residence Relief applies to the time the property was occupied as the main home, and certain periods of absence may also qualify for relief, such as time spent working abroad. Additionally, the final nine months of ownership automatically qualify for PRR, regardless of whether the owner was living in the property during that time. This relief is particularly beneficial for those who have lived in their homes for a significant period, ensuring that they can reinvest the full proceeds of their sale into their next property or other ventures without a CGT burden.
Why is it important?
Private Residence Relief is crucial as it provides significant financial relief to homeowners by exempting them from Capital Gains Tax (CGT) on the sale of their primary residence. This exemption encourages homeownership by reducing the financial burden associated with selling a home, allowing individuals and families to retain more of their property’s appreciated value.
What are the conditions?
To qualify for Private Residence Relief, several conditions must be met. The property must be the taxpayer’s main residence at some point during their ownership. Partial relief is available if the home was not always the main residence, calculated based on the proportion of time it was used as such. Certain absences, such as periods spent working abroad may still qualify for relief.
Additionally, the final nine months of ownership automatically qualify for PRR, irrespective of the property’s current occupancy status. If the property has been your main residence at some point during ownership, the last 9 months of relief are available.
If the property includes grounds or gardens (up to half a hectare) PRR is also available on the value attributable to those.
PRR is only applicable to individuals, not companies, and there must be no significant business use of the home. These conditions ensure that the relief is targeted at genuine homeowners using their property primarily as a residence.
Making elections where you have more than one property
When a taxpayer owns more than one property which they use as a home, they can elect which property should be considered their main residence for tax purposes.
The election must be made within two years of acquiring the second property. The chosen property will then be eligible for PRR, exempting it from Capital Gains Tax (CGT) upon sale. The election can be changed later if circumstances change, as long as the new election is made within two years of a change in the combination of residences.
The Case of Patwary (2024)
In a recent tribunal case, the primary issue was whether PRR should apply to the sale of Emmott Close, London, for the year ended 5 April 2016. HMRC disallowed the claim, contending that the property was not the appellant’s only or main residence during the relevant period. The appellant asserted that he lived at Emmott Close from April 2010 to October 2013 with his then-girlfriend, but HMRC argued that there was insufficient evidence to prove this.
The tribunal had to decide if the appellant had met the burden of proof to show that Emmott Close was indeed his main residence, providing the necessary degree of permanence and continuity to qualify for PRR.
Arguments by the Appellant and HMRC
The appellant argued that he lived at the property from April 2010 to October 2013 with his then-girlfriend, asserting it was his main residence during this period. He provided some evidence like mortgage statements and utility bills addressed to Emmott Close to support his claim.
HMRC, on the other hand, argued that the appellant did not live at Emmott Close as his main residence, pointing to a lack of significant evidence such as council tax bills or registration on the electoral roll at that address. They highlighted inconsistencies, such as the appellant’s failure to change his bank address and his statement that any residence at Emmott Close was unexpected and temporary, which undermined the claim for PRR. HMRC contended that the appellant’s living arrangement lacked the necessary degree of permanence or continuity to qualify for the relief.
The Outcome
The result of the tribunal case was that the appeal was dismissed. The tribunal concluded that the appellant had not discharged the burden of proof required to show that 19 Emmott Close was his only or main residence during the relevant period. Despite his assertions, the evidence provided was insufficient to demonstrate that he had lived at the property with the necessary degree of permanence or continuity to qualify for PRR. Consequently, the relief was disallowed, and the tax assessment by HMRC stood.
Advice for Claiming PRR
To successfully claim PRR, you must ensure the property is your main residence for a significant period. You should retain documentation, such as utility bills, council tax statements, and bank statements, all addressed to the property. Register to vote at this address and update it with banks and HMRC. Demonstrate long-term commitment for example by participating in local activities and enrolling children in nearby schools. Document any allowable periods of absence and keep records of significant events that show the property is your primary home.
Next Steps
If in doubt, please contact us for professional advice and thereby reduce the risk of disputes with HMRC.
Narrator: It’s been a busy year at the Barbie’s UK Dream House.
Like the record number of UK individuals (3,275) who submitted their tax returns on Xmas day[1], Barbie and Ken have finished their turkey dinner and have started talking tax…
“How’ve you found your first year in the UK then Barbie?”
“Not good, Ken”
“Yeah, I remember that nonsense when we were buying this, our UK Barbie’s Dreamhouse, right here in Mayfair”
“What was all that about Ken? First they tell me I have to pay [x]% stamp duty… then they accuse me of being a Non-Natural Person… I mean… Hello?…Did they not see the end of the year’s biggest film. We live in the real world now”
“But then, get this, Ken. They also add a bit more because I already own the original Barbie’s Dreamhouse and then.. get this… they add a bit MORE, because I was also, like, non-resident at the time.”
“And then there was the other tax scandal Barbie!”
“The Guardian start saying I’m using the Non-Blonde loophole. Which is outrageous as I’m a natural blonde.”
“Well, they told me to come to the UK to save tax. I’d only pay tax on what I bring into the UK! But then I end up with the IRS after me. Saying I’m a UK citizen. Last time I looked, I was president of Barbie Land.’
“I liked it in Barbie Land. We didn’t pay any taxes.”
“Yeah, I think that Murray N Rothbard was on to something Ken…”
“It can’t all be bad, can it Barbie?”
“Well, my accountant gave me some good news about my classic 1953 pink Chevvy convertible.”
“Oh, what was that?”
“My accountant say’s it’s a wasting asset so I won’t have to pay any capital gains tax if I sell it.”
“To be fair, we’ve not been able to drive around much in it, have we?”
“Well, no. It’s always cold and raining… and its been in the garage for months after hitting those potholes.”
“I’ve got some good news, anyway Barbs.”
“Oh, what’s that?”
“You know I’ve been watching COP28 right? Well, its in Dubai and I just wanted to see some sunshine… but then I started getting into all the green stuff.”
“What, money?”
“No, the environment and stuff. They were talking about Plastic Packaging Tax and…”
“You’re always going on about your plastic package Ken, grow up.”
No, Plastic Packaging Tax. And, before you mock me, Taxation Magazine has asked me to do an article on it for. In fact, I think I might become a tax adviser you know. It seems there are a bloody lot of taxes. Perhaps I just pick one. Plastic Packaging Tax?
“Good for you. But, the Oppenheimer’s are coming around for a drink in a minute. Please don’t talk to them about that nonsense. You know he’s not into all that new age, climate stuff.”
“They’re not going to be sat around naked in their chairs again, are they?”
“Listen, I know they’re a bit odd. But they had asked us to go over for Xmas dinner so count your blessings Ken.”
“Oh no, remember last year’s dinner Barbie?”
“Yeah. It was inedible. He’d absolutely nuked the turkey.”
[Door-bell rings]
“That’ll be them”
[A few hours later]
“Mrs O and I are having a great time Barbie and Ken. I do love this champagne. Who doesn’t like a bit of fizz… One might say, the more fission, the better!”
“Robert!!! I’ve told you about those awful puns.”
“Just a bit of fun. You know how us physicians love a good dad joke…. [Oppenheimer starts loosening his tie] Anyway, is anyone else getting a bit hot in here?”
[Barbie and Ken look at each other nervously]
“Oh, that reminds me, Dr O. Ken and I were talking about taxes earlier and we were wondering about HICBC. Surely you, the American Prometheus, must understand it”
“HICBC? What is that, some kind of complex chemical compound?”
“Anyway, we need to make our excuses, don’t we Mrs O. We’re going to say hello to the new guy who’s moved in down the road.”
“Oh, who’s that?”
“That guy from the other big film this year. You know, the egomaniac with short man syndrome?”
“What? Napoleon?”
“No, Tom Cruise.”
“Enjoy the rest of Christmas…”
[The Oppenheimer’s leave]
Narrator: The atmosphere in the room becomes tense.
“They’re a nice couple, aren’t they Barbie.”
“They were weird a few hours ago. You were worried about them sitting around naked.”
“Well, I think its nice they share the same hobbies… Mrs Oppenheimer is so supportive… and he was building a bomb that could end all civilisation. All I want to be is a tax adviser! Tax advisers never hurt anyone, did they?”
“Don’t be stupid Ken. You were happy being the beach guy no so long ago.”
“Well, I can’t really be the beach guy in West London can I?… If you must know. I am now officially training on Tik Tok as a tax adviser. So there.”
“Sure, Ken”.
[Ken starts to get increasingly irritable]
“… and what, about that bald guy who’s always hanging around you?”
“That guy!? He’s such old news. Tell you the truth, he’s started to get a thing for Indiana Jones”
“Don’t think I didn’t see you and him on Kiss TV last night.”
“I’ve told you before Ken. That’s just pretend. And they’re repeats, anyway.”
“Verrrrry convenient.”
“Ok, Ken.”
“Well, Barbie, something else that is convenient. And I know as a trainee tax adviser, that the Finance (No 2) Act 2023 received Royal Assent on 11 July 2023…
“that’s a fine word salad, Ken…”
“… WHICH means that spouses and civil partners no longer have to resolve their finances within the tax year to avoid CGT. We’ve now got three years, Barbie, three years… unless pursuant to an order or agreement – then we’ve got longer!”
“You’ve certainly been reading up Kenneth.”
“Reading? It’s all there on Tik Tok now, Barbe… And one more thing. Main residence relief. That’s dealt with too. So, like, yeah, I’m talking the Dreamhouses here.”
[Barbie is getting irritated]
“This is starting to sound like that patriarchy thing again, Ken. What are you trying to tell me?”
[Narrator: Ken pulls out a letter]
“This, my sweet, is a letter from my solicitor telling you that your husband has filed a petition for divorce… It also tells you to get yourself a solicitor pretty damn quick… Happy Christmas, Barbs!”
[Ken storms out]
“But… we’re not even married, Ken?”
Narrator: and so it came to pass, that this year’s Christmas story was, in its entirety, a lay-up shot for a poor ‘Dirty Ken’ pun.
The property consisted of a substantial residential property and a sizeable garage, both held under separate title numbers. The garage was within the garden and grounds of the main house and could be accessed from the garden of the main house both on foot and by road.
A tenancy was granted over the garage to a company on the same date that the sale of the property completed. Whilst the company was a commercial business, Kozlowski (the purchaser of the property) was a minority shareholder in that company.
The company planned to use the garage to store books (although it did not allow the tenant ‘exclusive possession’ of the garage). This was important as Kozlowski also stored his own possessions in the garage..
Under the terms of the tenancy agreement the company was required topay £50 per month to Kozlowski as well as electricity costs of the garage. However, there was no evidence that payments had been made.
Key Considerations
The three primary areas of consideration by the FTT were as follows:
Whether the lease existed at the time of the purchase
Whether the garage falls within the definition of residential property (and therefore the use of the garage was irrelevant)
Whether the garage was an interest in land that exists for the benefit of the main house
The decisions were as follows:
In line with previous case law (specifically Ladson Preston v HMRC), the FTT noted that what is important is the status of the chargeable interest at the time it was acquired. In this case, the chargeable interest was wholly residential and the fact that a lease was then granted in respect of part of that property was irrelevant.
The garage was not found to used for a separate non-residential purpose and was found to be part of the garden and grounds of the main property.
In line with 2),the garage was found to be part of the property and could not be regarded as an interest in land in its own right.
Key takeaways
What is important here is the status of the property at the time of completion.
Where structures might be considered to be “ancillary” to the main subject matter of the transaction, usually the main property these are highly likely to be seen to be part of the garden and grounds of that property and for its use and enjoyment. Other examples of this are residential purchases involving paddocks (with some exceptions such as Suterwalla v HMRC).
What does this mean for buyers of residential property with additional features?
We envisage that HMRC will continue to dig deep into purchases involving SDLT claims for mixed use Property.
A 12-week HMRC consultation into SDLT matters such as this ended on 22 February 2022 but an approach (or change in approach) to calculating SDLT on transactions such as this is yet to be announced.
It is highly likely that there will be material changes to the SDLT rules in the short-term and we would advise people buying property that is a little out of the ordinary to seek advice on the specific SDLT treatment of the transaction, especially as there may be a need to act quickly if changes are proposed.
Next Steps
If you require assistance with claiming relief for SDLT, or in reclaiming overpaid SDLT, please do not hesitate to get in touch. Our team of expert advisers have a wide range of experience of dealing with SDLT matters.
