Stamp Duty relief traps for conveyancers

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Stamp Duty relief traps for conveyancers

Published 6 abril 2020

In our article published on 2 April 2019 we warned of the rise in claims against conveyancers and other property professionals arising out of an alleged failure to advise purchasers that they could claim multiple dwelling relief (“MDR”) when purchasing a residential property with more than one “dwelling”. We look at how this trend has developed and highlight other SDLT traps for conveyancers to watch out for.

MDR

The past year has seen a significant rise in claims against property professionals for failing to advise their clients of the potential to claim MDR.

MDR is a way of reducing the Stamp Duty to be paid on the purchase of a residential property. HMRC guidance states that “you can claim [MDR] when you buy more than one dwelling where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling”.

In HMRC’s guidance a dwelling is described as “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.” In 2016 HMRC produced guidance which advised that an annexe could be considered to be a separate dwelling. This, in turn, has led to a significant number of claims against property professionals for failing to advise purchasers to claim MDR.

As HMRC did not produce its guidance until 2016, there appears to be a question mark over whether property professionals owed a duty to advise on MDR claims prior to that date, especially given a lack of guidance in the Conveyancing Handbook and trade press. While property professionals are under a duty to advise on the amount of SDLT payable, it also remains to be seen whether providing advice on specific reliefs amounts to specialised tax advice, and whether this is within the scope of their duty of care.

In respect of current claims, where conveyancers are advising on MDR claims, they should be alive to the fact that HMRC are challenging whether an annexe is a standalone “dwelling” and clients should be prepared to provide evidence if a claim for MDR is to be made.

Guidance

If property professionals are to advise on MDR and other reliefs available, the release of The Law Society’s “Stamp Duty Land Tax Handbook – A Guide for Residential Conveyancers” should provide welcome guidance. In addition, in order to get accredited under its Conveyancing Quality Scheme, law firms must have a policy on how to provide an audit trail on the SDLT information given to clients, any advice and how the SDLT has been calculated.

In the meantime, these are some traps for conveyancers to be aware of:

First time buyers

Such buyers can claim full or partial relief on first time purchasers but that can be clawed back by HMRC if a buyer owns an interest in another property. Conveyancers should therefore obtain details of their client’s interest in other properties at the outset.

Bank of Mum and Dad

Where lenders insist that parents own a share of the property if they have loaned money to children to complete a purchase, this could affect a claim by the children to claim first time buyers relief due to an exception for new leases.

Divorce trap

If a couple divorce and sell the main property, conveyancers should check on any reclaim of SDLT when calculating the SDLT payable by their client on the purchase of a new home.

Main residence

If a client has sold their main home and uses the proceeds to purchase an investment property but then goes on to purchase a property to live in, the second property is a main residence rather than an additional property and the SDLT should be calculated accordingly.

Authors

Catrin Davies

Catrin Davies

Newport

+ 44 (0)1633 657682

Sophie Ruffles

Sophie Ruffles

Newport

+44(0)1633 657624