HMRC Guidance Error Triggers Landlord Stamp Duty Tax Refunds

Landlords can make stamp duty savings worth tens of thousands of pounds after HMRC has had a change of mind about charging enhanced rates to property investors. 

HM Revenue & Customs has confessed that ‘incorrect guidance online’ has led to wrongly charging homes bought by landlords since 2016. 

Mixed-use premises include an element of commercial activity, like renting a flat to a private tenant over a shop or office. 

Read on to see if you qualify for a stamp duty refund.

What are the mixed-use property stamp duty rules?

Under the mixed-use stamp duty rules, owners pay the tax when paying £150,000 or more for a property. 

If the mixed-use properties were second homes or investment properties, stamp duty was charged at an enhanced rate adding a 3% surcharge to the standard rate. 

The tax also applies to multiple dwellings relief when a chain of transactions for buying two or more homes. This is due to properties with an annexe, like a granny flat, and Mixed-use properties must generate rental income to show business use.

Why is the HMRC guidance wrong?

The first point is HMRC guidance is just their interpretation of the law, not the law itself. Any sensible tax adviser would disregard HMRC’s guidance and refer to the law and case history updates. 

The courts have declared HMRC guidance inaccurate on many occasions. 

The latest update to HMRC stamp tax guidance comes after a string of cases brought by a tax consultancy highlighted the wrong advice over four years. 

The cases revealed the enhanced stamp duty rate should only apply to residential cases and that a standard rate of 1% should apply to mixed-use transactions. 

David Hannah, CEO of specialist stamp duty consultancy Cornerstone Tax, says he pointed out the errors in the online guidance in December 2019.

What does HMRC say about the stamp duty glitch?

Online tax manuals have seen a flurry of update activity since November 13 2020, which has seen sections rewritten and new case studies added.

An HMRC spokesperson said: “Stamp duty is a self-assessed tax, and we strive to give everyone the best tools to enable them to pay the right tax at the right time. This includes online guidance on how HMRC interprets the legislation and the requirements of its customers. “When we recognise there is a clear error resulting in an overpayment of stamp duty, we will take the necessary steps to ensure the amount is refunded to its customer in a timely manner. 

"On other occasions, where there is a potential error which may not be immediately apparent, taxpayers can inform HMRC of the overpayment and request a refund.”

Who is entitled to a refund?

No one knows how many developers and landlords are entitled to a stamp tax refund as HMRC has released no data. However, Hannah reckons the number could be significant and says he knows of several cases where overpayments total hundreds of thousands of pounds. Work by his consultancy uncovered HMRC’s inaccurate guidance.

How to claim a refund

Property buyers should have filed a stamp duty return within 14 days of completion of the purchase. In writing, the tax return can be amended within 12 months of filing either online, by phone or if the changes are substantial. 

The excellent news is HMRC guidance states refunds can be paid after the 12-month deadline has run out by writing to explain the error and how the overpayment arose. 

You should include

  • A copy of the initially filed tax return
  • Revised figures and details of the refund due
  • If you have them, the contract or lease for the transaction
  • Your bank details

Stamp Duty Land Tax FAQ

Stamp Duty Land Tax (SDLT) is paid on the purchase of a property. Other purchases are charged at varying rates – with a 3% surcharge added to the standard rate for anyone buying a property they do not intend to live in full time. 

Stamp duty is confusing – and not made easier by regional assemblies in Wales and Scotland levying their taxes with different rates and rules than in England.

What is stamp duty?

Stamp Duty Land Tax is paid on purchasing a home, land or other property in England. How much stamp duty is paid depends on the rates in force at the time the purchase completes, but if you buy a second property or more properties, you pay the standard rate plus an extra 3%. If you’re buying in Scotland, you pay Land and Buildings Transaction Tax (LBTT) and Wales Land Transaction Tax (LTT).

Does the HMRC error mean refunds for buy-to-let landlords?

No. The revised HMRC guidance applies to multiple-use properties and tax paid on homes bought when the buyer already owned another home.

Can I claim a refund on a second home overseas?

No. You can only claim a refund on property in England as you paid no stamp duty in the UK when you made the foreign purchase.

I think I have a claim – what do I do?

Speak to your accountant or tax adviser for guidance. Stamp duty is notoriously riddled with arcane rules and is difficult to calculate if the transaction is more than a single property purchase.

Where can I find more information?

The revised HMRC guidance has several examples that clarify the rules, while David Hannah has a blog highlighting the stamp duty overpayment problem on the Cornerstone Tax website.

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