Welcome to April’s edition of the Stamp Duty Land Tax Case Notes from SDLT expert John Shallcross. As well as a number of guides on line, he is putting on line case notes, intended as short pieces on SDLT issues which arise from day to day.
These might be of interest to a variety of people, but are mainly aimed at other property lawyers. An increasing part of John’s practice is acting on a consultancy basis to support conveyancers who advise on SDLT, but sometimes need specialist input.
You can stay up to date with all of our SDLT insights by signing up to receive our new stamp duty land tax update. Under the heading ‘Legal interests’ you should select ‘Stamp duty land tax’.
Transitional rules and variation of a contract – 30 April 2020
For me, one of the most useful parts of the meetings of the SDLT Working Together Stakeholder Group is the update on litigation, especially about cases which have been heard, but on which a decision is awaited. HMRC mentioned at the meeting (held by dial in) on 23 April 2020 a case which had been heard on 11 and 12 December 2019 on which a decision is expected soon. HMRC were not able to give much detail, but said it relates to a contract formed before rates of SDLT changed and the question of whether the contract was varied after the rates of SDLT changed so that the new rates of SDLT would apply to the transaction.
For example, say there was a contract entered into on or before 25 November 2015 (the date of the Autumn Statement which proposed the 3% surcharge). The contract was to buy a flat in the course of construction, with a long and flexible completion date. Completion occurred in say 2017 after the 3% surcharge came into effect on 1 April 2016. For the sake of the example, let us assume that this was a property bought to rent out by someone who owned their own home. Accordingly, if the surcharge rules applied, the extra 3% would be due.
Transitional provisions for the 3% surcharge say that a transaction completed on or after 1 April 2016 pursuant to a contract entered into before 26 November 2015 will not be subject to the surcharge rules so long as some conditions are met. One condition is that the contract has not been varied on or after 26 November 2015. Guidance issued on 16 March 2016 (the date of the Budget which firmed up the rules) dealt with the transitional rules. The guidance said that a variation of the contract which would cause the loss of the protection of the transitional provisions included changes to “the land being purchased, the parties to the contract or to the contractual consideration or in an agreement for a lease to the term length”.
The guidance went on however to say: “Some changes, for example, to prescribed colour schemes or to contractual completion date , may to too insignificant to amount to a variation.”
In practice with this kind of contract for a new build flat, one does often see some adjustments having to be made, for example to the arrangements about the completion date if building works take longer than expected. The question is whether these adjustments take the transaction outside of the protection of the transitional provisions. We come across cases where the adjustments are made informally by correspondence, others where there is a formal variation of the contract, but the change is a minor one, perhaps just to the long stop date for completion.
Given that the legislation refers to a “variation” without saying that it needs to be a “material variation” or a “significant variation” it will be interesting to see if the decision, when released, casts any light on this.
Authorising an agent to amend a return – 29 April 2020
The Stamp Taxes Newsletter of April 2020 of 16 April 2020 sets out HMRC’s requirements as to a letter of authority by taxpayers for HMRC to deal with an agent for SDLT matters. This includes a case where a return is to be amended so that SDLT can be reclaimed. HMRC require all of joint buyers to sign it. The newsletter said that HMRC are looking to publish a template letter in the future.
At the meeting of the SDLT Working Together Stakeholder Group on 23 April 2020 HMRC said that their staff have been instructed to accept as authority a signed form COMP1. This form is designed as a temporary authorisation to allow HMRC to deal with an advisor in relation to a compliance check. The structure of the form calls for the information that HMRC seek for an authority to deal with an agent to amend a return. COMP1 is more appropriate than another prescribed form of authority (such as form 64-8) which has the effect of revoking the authority of other tax agent and of making the agent the point of contact for other taxes as well.
SDLT refunds only paid electronically now – 28 April 2020
Refunds of overpaid stamp duty land tax can be due for a number of reasons. There is a specified procedure, using Form SDLT16, where the 3% extra paid on the purchase of a new home can be reclaimed following the sale of the old home. There are no prescribed forms for other types of refund, for example:
- When a return is amended to make a claim for multiple dwellings relief.
- When overpayment relief is claimed on the basis that SDLT had been paid at residential rates when the property was derelict.
- When a repayment claim is made on the basis that SDLT was paid at residential rates for a mixed use transaction (four Tribunal cases on whether a dwelling with extra land counts as “mixed use” are referred to at 23 March 2020 in my Case Notes).
- When the 3% extra SDLT should not have been paid in the first place because of the way the “replacement exception” works.
- Where SDLT is paid on the “substantial performance” of an agreement for lease, but the contract is then rescinded, as in the Candy case.
For reclaims of the 3% surcharge using SDLT16, the on-line form requires that bank details are provided. HMRC then repay electronically. Other applications can be made by letter and HMRC used to able to repay by “payable order” (it looks just like a cheque to me). Recently HMRC have made the decision to pay by electronic means only. The first publication of that policy I saw was in the Stamp Taxes Newsletter of April 2020 of 16 April 2020. It says: “We issue all SDLT repayments electronically, as this is the most secure and efficient way. We are unable to repay by any other method.”
The meeting of the SDLT Working Together Stakeholder Group on 23 April 2020 discussed the point. HMRC confirmed that they need bank details and will only repay electronically. If these are not provided on the application for a refund, HMRC will write and ask for them. The account details have to be sent by letter, they will not be accepted by email for security reasons.
So those making applications for refunds should supply the bank details up front if they want to avoid delays.
POST SCRIPT of 4 May 2020: HMRC mentioned at the WTSG meeting that when they send money back electronically they will quote as a reference the “UTRN” (Unique Transaction Reference Number) which is allocated by HMRC when a land transaction return is filed. It is comprised of 9 digits followed by two letters and is on a SDLT5 certificate. HMRC say that the reference will be put in the field provided for the Building Society Roll Number. Roll numbers can be up to 18 digits long, so this should work.
Mixed use property and MDR, the test case does not deliver – 27 April 2020
In August 2019 I published a blog arguing that HMRC guidance was wrong in the way it treated the application of multiple dwellings relief to a mixed use property transaction. I argued that on a proper reading of the legislation the higher rates of SDLT (with the 3% surcharge) cannot apply to the dwellings element where multiple dwellings relief is claimed for a transaction which also involves non-residential property. That was on the basis that a single transaction with both dwellings and non-residential property could not be a “higher rates transaction”.
HMRC had been proposing to issue guidance on the point, but it emerged that they were holding off, pending the result of a test case. The decision in that case (combined appeals by Troy Homes) was released on 1 April 2020, but fails to address the substantive point as HMRC lost on the basis that their enquiry notices were not properly served.
I have now updated my blog on the issue of mixed use property and MDR to explain a bit more about the Troy case and to say that at the meeting of the SDLT Working Together Stakeholder Group on Thursday 23 April 2020, HMRC said that as they no longer have a case in process, they will soon be issuing guidance.
POST SCRIPT of 4 May 2020: The decision in the Troy case can be found from a note on the website of Patrick Cannon, the barrister on the winning side.
POST SCRIPT of 14 May 2020: The decision is now on the First Tier Tribunal’s website and can be found here.
Linked transactions, new guidance – 24 April 2020
For SDLT purposes it often matters whether two transactions are “linked” to each other. It can be difficult to establish if transactions are linked. There has been some guidance in HMRC’s Manual at SDLTM30100 but it is tricky to apply for a self-assessed tax. It was interesting therefore that a little more guidance was published on 16 April 2020 in the Stamp Taxes Newsletter of April 2020.
HMRC explain in the newsletter that to decide if the transactions are linked, one needs to consider the circumstances and arrangements as a whole and look into the terms of the relevant agreements. More helpfully they then say:
They will be ‘linked transactions’ if:
- they form part of a single bargain or deal
- any transaction is dependent on, or affected by, another transaction
There was a meeting of the SDLT Working Together Stakeholder Group yesterday. HMRC confirmed that we should read an “or” in between the two bullet points above. It is still a matter of judgment whether transactions are linked, but we now have a little more to go on.
Case study on replacement exception for the 3% surcharge – 20 April 2020
I have posted today a new case study showing how the rules on the “replacement exception” are so complex that even HMRC sometimes misunderstand them. It involves Florence who, on a proper analysis, should be able to rely on her 2018 disposal of her half share in the former marital home to escape the 3% surcharge when she buys a new home to live in. On a correct analysis it does not matter that she will be keeping a house she had owned from before she met her husband and in which she has been living since separating from her husband.
I have also updated Katherine’s Case Study, including a note that HMRC have still not corrected the misleading .gov.uk guidance on the higher rates which had misled the case officer in Katherine’s case. It is not clear from the HMRC letter why they went wrong in Florence’s case, but it might well be that the errors in the .gov.uk guidance are to blame again.
Too derelict to be a dwelling? – 16 April 2020
The case of Fiander and Brower mentioned in yesterday’s case note also has something to say about the question of whether a house which is out of repair is so derelict as not to count as a dwelling. The heating was not working and some flooring needing replacing. It was found not to be so out of repair as to count as non-residential property and the judge went on to consider the issues about multiple dwellings relief.
“a building remains suitable for a certain use at a certain time if, at that time, it is clear to an objective observer it was used for such purpose in the relatively recent past, and all that has happened is that it has fallen into relatively minor disrepair.”
Decision on multiple dwellings relief – 15 April 2020
The First-tier Tribunal released its decision on 9 April 2020 in the case of Fiander and Brower v HMRC. It involved a property consisting of a house and an annexe joined by a corridor. Significantly there were no doors on the corridor. The Tribunal decided that the purchase did not qualify for multiple dwellings relief and so an extra £10,000 of stamp duty land tax was due. I have written about the decision here.
Some key points coming out of the decision are:
- The Tribunal focused on the physical attributes of the property such as the living accommodation and the access arrangements to determine whether it was “suitable for use” as two “single dwellings”. It did not consider the degree to which the services to the two parts were capable of separate operation and isolation (for example if the electricity could be separately shut off from within each part).
- The Tribunal did not find very relevant other matters such as the council tax status of the property or whether the annexe had a separate address. It gave no weight to “legal suitability for use” such as a restrictive covenant on the property; the permitted planning use was not even mentioned.
- The Tribunal said the accommodation in both parts of the property needed to have a sufficient degree of privacy and security such that strangers could live in each part as a stand-alone dwelling. It was not enough that the parts were separate enough that a relative or a trusted lodger could live in the annexe. The Tribunal said that the “stand-alone” requirement followed from the word “single” in the wording of the relief referring to “single dwellings”.
- It was the view of the Tribunal that making an adaptation to a property, such as fitting a door, would not be enough to qualify for the relief. This was in contrast with a situation where it is evident that the work required to achieve the separation would be restoring the property to an earlier configuration.
POST SCRIPT of 14 May 2020: The decision is now on the First Tier Tribunal’s website and can be found here. I have heard that HMRC did not fully address in its enquiry nor in the Tribunal case the issue of whether the services to the two parts of the property were capable of independent operation and isolation. Because the point appears not to have been fully discussed at Tribunal, perhaps future cases will have more to say on this issue.
Student accommodation – 9 April 2020
There is an interesting category of student accommodation which:
- Does not count as “halls of residence” (HMRC explain this; one feature of “halls of residence” is the accommodation is limited to students of a particular educational institution and that the institution is involved in placing its students in the accommodation).
- Is restricted to use by students only (usually by planning conditions).
- Is configured as a number of dwellings (perhaps each student having a self-contained flat, or more often comprising cluster flats sharing a kitchen, where usually it would be the cluster which constitutes a single dwelling.
This category is interesting because of the beneficial SDLT treatment which follows. Peculiarities of definitions in the legislation mean that multiple dwellings relief is available to this category of accommodation, but the higher rates of SDLT for additional dwellings (the 3% surcharge) does not apply.
SDLT helpline and contact details – 7 April 2020
It was only on 31 January 2020 when HMRC reported that by putting extra people onto the helpline 0300 200 3510 they had reduced the “eliminations” (calls which were accepted, played a long message and then terminated) from about 1,000 a day to only about one a day.
Because of the measures to stop the spread of coronavirus, HMRC now have fewer advisers available to answer calls. They have announced on their contact details page that they have temporarily changed the opening hours for the helpline to between 8.30 am and 4.00 pm.
The same web page gives an address, with a non-geographic post code, to which correspondence about SDLT (but not payments) can be sent. It is:
BT – Stamp Duty Land Tax
HM Revenue and Customs
HMRC have a digital mail scanning system which sorts the post and directs it to the appropriate team automatically. If an item is to be sent by courier, the address to use is:
HM Revenue and Customs
Benton Park View
Newcastle Upon Tyne
I have written in a blog mentioning the possibility of HMRC providing an email address to which correspondence about SDLT can be sent, but we should not expect that any time soon.
POST SCRIPT of 4 May 2020: At the Working Together Stakeholder Group meeting of 23 April 2020 HMRC said that even with staff being redeployed to deal with the Job Retention Scheme, Stamp Taxes are still meeting targets for dealing with telephone calls and incoming post. They said that they were dealing with 92% of refund claims within their 15 working day target. There are no present plans for an email address to be provided for SDLT issues; HMRC say the system of scanning incoming post is working well and there is no need for an email address.
3% surcharge: is there any wriggle room on the three year rule? – 6 April 2020
A piece I have written has gone up today on our website speculating on whether the period of three years within which to sell a previous home might be extended.
The background is that if Home A was retained when Home B was bought, it is likely that the extra 3% SDLT would have been due on the price of Home B, even though the buyers intended to live in it. The buyers can often recover the extra 3% if they sell (or otherwise dispose of) Home A within three years of buying Home B. I have previously published a blog on the three year rules. There will be some people who are in the process of selling Home A near to the expiry of the three year period and who are concerned that present problems will mean that the time limit is missed.
The new post considers whether there is any flexibility to the three year time limit and whether in a few cases it is worth looking into transferring Home A to a limited company.
POST SCRIPT of 4 May 2020: At the Working Together Stakeholder Group meeting of 23 April 2020 HMRC’s head of Stamp Taxes said that three year time is being “looked at” in Government, but he could not say more than that. A statement of 28 April 2020 by the Scottish Cabinet Secretary says that a further Scottish Coronavirus Bill will include provisions to “overcome some problems with statutory deadlines”. The statement reads: “Reflecting the realities of our housing market, for those who had paid the Land and Buildings Transaction Tax (LBTT) Additional Dwelling Supplement prior to a particular date, the Bill will extend the time period during which a previous main residence must be sold in order for them to claim a repayment from Revenue Scotland.” The “Additional Dwellings Supplement” is the equivalent of the 3% surcharge in England, though in Scotland it was increased to 4% from 25 January 2019.
POST SCRIPT of 14 May 2020: In Scotland the proposal is to increase the time to sell the old home in some cases to 27 months after the purchase of the new home (in Scotland the period is usually 18 months). The briefing paper explains that the 9 month extension is to apply where the purchase on which the extra 3% or 4% was paid completed between 24 September 2018 and 24 March 2020.
More SDLT case notes can be viewed here:-
These notes are intended for general information purposes only and do not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.
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