The £ 2bn problem facing homeowners
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One of the biggest issues facing property owners today is overpaying taxes on previous transactions.
Chaired by Yorkshire Editor-in-Chief Ben Ormsby, TheBusinessDesk.com hosted a Cornerstone Tax Advisory-sponsored panel to delve into the broad issue that speakers say transport agents and lawyers know very little about.
The property tax on stamp duty (SDLT) was introduced in 2003, replacing the stamp duty. All acquisitions apply, but this is complex due to a number of factors such as; the type of property, the type of buyer, the nature of the transaction, the number of units owned and the nature of the consideration provided.
David Hannah, the senior consultant at Cornerstone, says there is a range of issues with SDLT, but mainly lawyers and transport agents don’t have the time or training to figure it out.
He said: âLawyers and transport agents who don’t have the time, or even the experience or expertise to fully understand the intricacies of SDLT and the 49 exemptions and releases that may apply to your transaction. “
Hannah explained that there had been a 285% increase in stamp duty refunds during the lockdown and that there was up to Â£ 10 billion in overpaid taxes due to the transfer or the sale of properties in pension plans that should not have been billed to the SDLT.
He said: âIt’s a clearing storm waiting to happen. Cornerstone has recovered over Â£ 15million in the past 12 months from SDLT overpayments. ”
He advises each buyer to seek advice before entering into a deal, or after entering into Cornerstone is in a position to verify whether SDLT has been calculated accurately.
There are specific exemptions for buyers who grant 100% exemption to SDLT. For example, if a property is uninhabitable, they do not need to pay the residential surcharge. As a result, a customer was reimbursed for Â£ 5,000.
If you are purchasing a site with an authorized development right for conversion, or even partial demolition and reconstruction, then you can claim the collective housing exemption at the time you acquire the site even though you do not necessarily have started the conversion. The Cornerstone customer received a refund of Â£ 105,000.
Another exemption is the multiple dwelling relief. The Cornerstone customer has a building permit for demolition and construction as well as a communal garden.
Hannah said: âBecause the development proposal was approved, it again meant the land was eligible for multiple housing relief. And not only that, it would have been mixed use so the customer could benefit from the minimum MDR rate of 1%. Not this 3% minimum surcharge rate.
They received Â£ 67,000 in reimbursement.
Additionally, âIncorporation has been very popular in the private rental sector over the past few years due to a loss of higher rate tax relief. If you own property in common, you do not need to have an officially registered partnership for SDLT purposes. I would point out then that you are not paying SDLT on the transfer of this partnership to a related person, in this case a limited liability company. A refund of Â£ 18.5,000 has been received.
Hannah Mackinlay, Commercial Property Lawyer, lectures on SDLT. She is surprised that many large companies have not received any training in SDLT.
She said: âOne, chief financial officer of a large London limited company, said that 75% of the company’s tax returns were false.
âI had an area manager from a very large conglomerate, Brewer, bowling clubs, lanes, etc., who said his CFO told him that to his knowledge there were probably 500 at 1000 different high value properties the wrong amount of tax has been paid.
Alan Forsyth of Hockley Developments, a residential developer in Nottingham, said all buyers should be aware of SDLT and consult companies like Cornerstone.
Forsyth said, âWe probably do transactions, maybe five sites a year. The majority already planned, and if these sites say in total, cost Â£ 3million, and in fact you overpaid 2%, on the SDLT, then it’s potentially 60,000 overpaid per year.
âIf you’ve been buying that number of sites for five years, that’s a lot of extra money. So we took a closer look at this.
All of the panelists agree that the problem with the SDLT is that it was misleading because people get confused with the old stamp duty.
The reasons for these errors are many – sometimes it is a simple case of misclassified property type, an exemption or relief missed by a lawyer or financial advisor or a misunderstanding of some. complex situations.
The result is always the same – tens, hundreds or thousands of pounds of tax paid that were never owed. It is estimated that over Â£ 2 billion a year is overpaid to HMRC.
Watch the full webinar below.