In November 2021, HM Revenue and Customs (HMRC) published its consultation on Stamp Duty Property Tax (SDLT) reform. The consultation highlighted issues with the SDLT which, alongside the planned changes, led the Institute of Chartered Accountants (ICAEW) to call for a “fundamental review” of the code, with the Chartered Institute of Taxation (CIOT) also expressing its concerns.
The main purpose of the HMRC consultation was to clamp down on SDLT abuse. This happens especially with the purchase of a mixed-use property. SDLT rates are lower for non-residential properties, so buyers claim the property has both residential and non-residential uses, so the entire purchase benefits from the lower rate. The other way this usually happens is by falsely claiming Multiple Dwelling Relief (MDR) on properties with a house and an annex.
The HMRC consultation therefore outlined potential MDR reforms and how SDLT is calculated for mixed property purchases. For the latter, they suggest that it would be fairer to distribute the different SDLT rates for each part of a property according to its use.
According to the ICAEW, this consultation serves to show that the SDLT code has become “more and more complicated”. The Institute said in its response:
“Competing policy objectives have added new surcharges, changed rates, or added relief without conducting a comprehensive review of how the tax works.”
The response goes on to point out that “the harms that consultation seeks to address are legitimate means [in which] the rules currently apply”, and that the SDLT rules refer to the term “housing”, but there is no legal definition of this term.
“The way the rules interact and the lack of clarity in the definitions have led to the unfortunate situation in which some recovery agents have sought to exploit patterns of facts that support easily replicable claims. Many of these claims will be valid because that is what the rules currently allow.”
Regarding HMRC’s plans to distribute mixed properties, the ICAEW said:
“While the ICAEW recognizes that this would improve fairness in the operation of the rules, it is concerned that the methodology suggested by HMRC in the consultation is unfair and should be reviewed.
This is because the calculation methods offered by HMRC work differently for multiple home purchases alongside a non-residential property, compared to buying a single home with a non-residential property..”
These questions are part of ICAEW’s view that the system needs to be reviewed with a more holistic approach:
“There are many other situations where the SDLT rules work surprisingly unfairly for some taxpayers. If HMRC is looking to correct an injustice in the system, these issues should also be looked into. The implementation date of the SDLT was December 1, 2003. As we approach the end of its second decade, the ICAEW suggests that a fundamental review of the tax be undertaken.”
The SDLT is also unpopular with homeowners and homebuyers: 58% believe the Stamp Duty Land Tax (SDLT) is an outdated form of taxation that needs reform.
Marc Selby, Chairman of the CIOT Property Tax Committee, shared his view, adding that HMRC’s plans would prolong the already lengthy home buying process:
“This proposal is a viable solution to prevent people from classifying their transactions as mixed-use when what they are buying is actually residential property, but it has significant downsides.
The breakdown will add more steps to a calculation that is already a complicated area of tax law, especially for transfer agents, most of whom are not tax experts.
The need for valuation would extend to more transactions than are currently required, which could add costs and compliance risk given the inherent uncertainty of valuation and extend the time to complete purchases ..”
“HMRC’s plan will take the injustices out of the system, as currently a country estate could pay a lower SDLT rate, simply because it has a small commercial element, than a three-bedroom semi-detached property in London.
But the problem is that the apportionment method proposed by HMRC leads to other kinds of unfairness resulting in a disproportionately high SDLT cost for a relatively low value residential property purchased together with a commercial property, for example a valuable farmhouse with a modest house or an office building with a caretaker. apartment.”
On the reform of the MDR, Selby noted:
“We understand the need to counter claims made by companies offering help with SDLT refunds that are proving too good to be true for property buyers.
Unreasonable claims seen by HMRC are limited to non-business purchases. This suggests that one of HMRC’s options of changing the rules so that an area separate from a main dwelling does not count as another dwelling unless its value is a third or more of the total price could meet to the government’s objective without the need to change the rules of professional procurement.
We would appreciate an assessment of the overall effectiveness of the MDR as part of the consultation process on any proposed changes.”
The full consultation on SDLT is available here.