If you've bought a home in the last few years, particularly if it's large or rural (or both) you may have had an unsolicited approach from an 'SDLT reclaim agent'. Such agents contact new homeowners to suggest that there has been an overpayment of stamp duty land tax paid by the homeowner on the purchase.  They promise, for a fee, to help the homeowner with the reclaim.  HMRC are becoming increasingly irked by some of these practices.

SDLT reclaim agents approach homeowners uninvited to suggest that their solicitor or conveyancer failed to interpret SDLT rules correctly and as such they may have overpaid tax. HMRC are concerned that a number of these reclaims are questionable at best.  The reclaims can result in homeowners receiving a refund from HMRC but then HMRC opening an enquiry into the reclaim with the payment ultimately clawed back by HMRC, sometimes through the tax tribunal.

The main targets of the SDLT reclaim agent "industry", according to a recent HMRC consultation, are the mixed-use and multiple dwellings relief rules.

Mixed-Use Property: Issues

The SDLT rules distinguish between three key types of property:

• residential (suitable for occupation as a dwelling)
• non-residential (not suitable for occupation as a dwelling or a purchase of 6 or more dwellings)
• mixed-use property (property with residential and non-residential parts).

In contrast, there are only two categories of SDLT rates:

• residential rates (which are higher, topping out at 17%
• non-residential rates (which are considerably lower, topping out at 5%).

The impact of the difference in rates can be considerable. If you are resident in the UK for tax purposes and bought a house as your primary residence for £1.5m you would pay £93,750 in SDLT.  A second home at the same price would attract SDLT of £138,750.  But spend the same on a shop or industrial unit and the tax would be £64,500.

The non-residential rates apply to mixed-use property, which includes a property with any non-residential element at all – no matter how minor.  They also apply to an acquisition of 6 or more dwellings as part of a single transaction.

The incentive to claiming that there are commercial elements that turn a residential property into mixed-use are obvious: if you can find a bit of your property which can be described as non-residential then you can pay lower SDLT rates. As such, HMRC have found themselves fielding increasingly tenuous claims of mixed-use property. HMRC's consultation lists the following examples:

• a garage in a semi-detached house which is rented out for storage
• a house with a home office in one bedroom
• a house with a paddock where a neighbour informally grazed their horse.

Mixed Use Property – Proposals

HMRC is consulting on two options. The first is making both sets of SDLT rates apply to mixed-use properties, with the residential rates applying on the residential portion (by value) and the non-residential rates on the rest. This would theoretically ensure the proper amount of tax was paid, although there are obvious valuation difficulties for the taxpayer and HMRC with this approach.

The other option is to set a threshold for mixed-use treatment, whereby only a property with 50% or more non-residential value would be eligible (the exact threshold would be decided later). In this case it would be much harder for a homeowner with a garage used for commercial storage to claim they qualified for lower rates, though HMRC fears people would still try (spurred on by reclaim agents). This would also have the effect of locking out legitimate claimants, however, particularly if the threshold was high.  Again, there would be valuation difficulties, particularly for values close to the 50% threshold.

Multiple Dwellings Relief - Issues

The other main line of attack for SDLT reclaim agents is claiming multiple dwellings relief. This provides that if you buy more than one 'dwelling' in a single transaction, your SDLT is calculated on two (or more as relevant) hypothetical purchases of separate properties, rather than on the combined value of the properties.

For example, if you buy two flats together for £500,000 you would be charged SDLT as if you'd bought two separate flats for £250,000 each. Since SDLT is charged at higher rates for more expensive properties, and you benefit from a second zero-rate threshold, the savings are significant. In this example the relief brings your SDLT down from £15,000 to £5,000.

The rules are designed to protect legitimate property investors and people buying homes with a 'Granny/Nanny Annex' attached, but since the taxpayer self-declares if the relief applies HMRC has found the envelope increasingly pushed. Examples of secondary dwellings they have challenged include:

• an en-suite bedroom with power sockets in (thus the homeowner argued a microwave could be used making the room a self-contained bedsit)
• a garage with a toilet in it
• a garage made only of breezeblock walls and with a power supply but no bathroom facilities at all.

HMRC has a strong success rate challenging these claims, but must incur time and expense on every occasion. From a recent sample of claims received they estimate 40% of all multiple dwellings relief claims are false.

Multiple Dwellings Relief – Proposals

As above, the solution in HMRC's eyes is to raise the bar for claiming the relief. One option is to restrict the relief to property investors by making it only apply to dwellings you are buying to rent out – excluding the 'Granny/Nanny Annex' entirely.

Another is to impose a threshold test like the one described above, where the secondary dwelling must be worth at least 33% of the total value of the property. This would be fine for people buying a pair of similar flats, but perhaps not for someone buying a large house with a small annex. There's also the risk that those willing to bend the truth would simply inflate the value of their garage-with-luxury-en-suite when claiming.

Finally, HMRC are considering making 'Multiple' mean 'three or more'. If people needed to buy three dwellings at once to make a claim then, in practice, it would seem extremely difficult to claim credibly an ordinary house could qualify. Though HMRC state in the consultation notes that they fear this might not be deterrent enough.

Next steps

It seems likely HMRC will pursue one option or another for restricting these types of claims. Not only do they make clear in the consultation notes how strongly they feel about having their own time and resources wasted, but they are conscious that the rules also lead to homeowners pursuing spurious negligence claims against their original solicitors or conveyancer for not making these spurious claims in the first place.

While the precise form of their action remains to be seen, property developers and SDLT reclaim agents alike would be wise to keep a close eye on HMRC's upcoming announcements.