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.
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.
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.
Must commercial use be substantial to allow a mixed use claim?
Overview
If the property you are buying has a commercial element to it, or perhaps a second dwelling (such as an annex or outhouse), it is possible that you may be able to apply the lower rates of SDLT (for mixed-use properties) or to claim Multiple Dwellings Relief (MDR), thus reducing your SDLT liability.
Providing certainty is key!
HMRC has become increasingly ‘wary’ of transactions where reliefs are claimed. It can be very hard for solicitors to be sure that their SDLT claim is correct.
Engaging a tax specialist to advice on your SDLT liability is the way forward!
Case – ‘residential’ or ‘non-residential’
The recent of HMRC v J Gibson demonstrates HMRC’s approach to analysis which gives rise to an SDLT saving.
The case centered around the classification of the property. This was known as Doe Bank Manor, which was purchased for £1,595,000 in January 2019. The question was whether the property was classed as ‘residential’ or ‘non-residential’ for SDLT purposes.
Background
The property was a substantial estate, of a six-bedroom house, a double garage with an office above it. Also a two-bedroom self-contained barn with two bathrooms, and an open-plan living, dining and kitchen area. Additionally, it has two stables and a 2 acre paddock. The paddock had been let to local farmers for sheep grazing for around 4 years.
When Mr Gibson’s solicitors submitted the SDLT return they did so on the basis that, as a result of the sheep grazing, the transaction was ‘mixed-use’, resulting in an SDLT liability of £69,500. (The SDLT return did not include a claim for MDR).
However, HMRC argued that the residential rate of SDLT should apply to the entire property based mainly on the fact that the property was used solely for residential purposes at the time of acquisition and issued a closure notice on this basis, thus increasing the SDLT liability from £69,500 to £153,000.
The facts
The precise use of a property at the date of the transaction is often critical to the SDLT analysis, and whilst the property included 0.5 acres of farm buildings and a farmyard, these were not being used. They were also separated from the paddock by a fence.
However, photographs in the sale brochure and a property visit indicated grazing sheep on the paddock. A market garden was also established to utilise the paddock for animal rearing and grazing. As Gibson had stated an ‘ad hoc grazing arrangement’ had been formalised, confirming that the land had been used for grazing for four years, with previous use prior to that by local farms. This agreement was still in effect when Gibson’s purchase was completed.
The decision
The First Tier Tribunal (FTT) found in HMRC’s favour, concluding that the paddock did not serve a self-standing commercial purpose and that it was not actively and substantially exploited for commercial gain.
MDR
Mr Gibson argued if the land was not mixed use he should be able to make a claim for MDR. This was on the basis that the separate house and barn constituted separate dwellings. (e.g. they had their own separate addresses, their own kitchens and bathrooms etc).
Whilst a claim for MDR may have been available, the FTT found that Gibson had failed to amend his SDLT return within the statutory time limit in order to make that claim. His claim lacked the necessary evidential basis, as the presence of kitchens and bathrooms in the house and barn was not sufficient alone to argue that separate dwellings existed.
What does this mean for you?
This case emphasises the importance of:
Complying with statutory time limits
Providing robust evidence when making SDLT claims
Having the appropriate knowledge and expertise
Next steps
Engaging with a tax adviser with specialist knowledge is critical. Every property transaction is unique, and we can provide bespoke tax advice based on the facts and circumstances of your transaction. Please get in touch with ETC Tax to get the appropriate knowledge when dealing with situations similar to this one.
