Reliefs and Exemptions: A Simple Guide on Stamp Duty 

Reliefs and Exemptions: A Simple Guide on Stamp Duty 

Reliefs and Exemptions: A Simple Guide on Stamp Duty 

As of December 1st 2003, the regime of Stamp Duty Land Tax was brought into force, replacing the previous Stamp Duty. In spite of the similar names, the operation and mechanics of the tax is actually substantially different.  

Unlike Stamp Duty, SDLT is a tax on the individual, not a duty on the transfer documents. It is, in the main, related to the purchase price of the property (but not always), it is a self-assessed tax, the liability for which falls squarely on the shoulders of the purchaser of the property and does not prevent registration of title even fi the tax is not paid – unlike its predecessor.  

When the tax is calculated correctly, this is no issue. When it isn’t, it can mean that a buyer suddenly has a liability to HMRC for underpaid tax and for which the penalties can be quite severe. 

Similarly an overpayment of tax of which they may not, initially, be aware, can have consequences for both them and the conveyancer as the time window to correct the Return is limited (generally 12 months) and after that the buyers only recourse is to claim against their conveyancer.

You may think at this juncture that the tool to make sure the correct number is arrived at has already been provided by HMRC – their online calculator, accessed through their website, is designed to give you the SDLT liability on any purchase, right?  

As it turns out, no. First off, the calculator is too simplistic to cover all the nuances of the tax . At the last count, there are 49 exemptions, exceptions and reliefs relating to Stamp Duty Land Tax, any (or multiples) of which may apply to a given purchase. Where some might seem obvious (Charities Relief, Multiple Dwellings Relief etc.) others are less so.

What to do, for example:

  • Where a property is not inhabitable at purchase, or when land is purchased with pre-existing planning permission?
  • What about if the property has land attached with a restrictive covenant?
  • What if no formal agreement exists but land belonging to the property is used by a local farmer for grazing his herds?

Any of these circumstances (or many more) could lead to material alterations in the SDLT bill under the law which would be missed by simply using HMRC’s calculator. 

Most of the most important questions, and their answers, need to be dealt with before you even click on “Calculate my tax” in the HMRC website

Read our latest blog: SDLT Risks and How to Solve Them

Indeed in 2019 when commenting to the Times newspaper, HMRC’s spokesperson confirmed that the calculator is intended merely as ‘a guide’ and that it is not considered by them to be a complete tool.

Instead, conveyancers are expected to make their own enquiries into the precise nature of transaction and property and satisfy themselves as to how both fit with the various twists and turns within the Stamp Duty legislation.

 If you get it wrong, you could be landing your client with a bill higher than what they need to pay, or worse, underpaying and leaving them the ticking timebomb of a future enquiry and a penalty payment plus interest.  

The liability for the SDLT may lie with the buyer, but who completed and filed the SDLT return on their behalf?   To whom will they look for recompense for their losses? Who will they blame for money spent out unnecessarily?

With PII premiums rising all the time (30% in the last quarter of 2021) and the SRA gearing up to increase the amount it can fine firms for poor conduct, it isn’t the time to be taking chances.

Larger firms may have a tax practitioner in house with enough knowledge of the SDLT system to give advice, but smaller firms and sole practitioner conveyancers will be out on a limb. 

So what are the basics to look out for:

  • Properties with additional land
  • properties which may have self-contained additional dwellings contained within them
  • land with planning permission
  • an uninhabitable property
  • a mixed-use property (with both commercial and residential elements, i.e. a shop with a flat above it) are all possible candidates for a more complex treatment.

But the truth is that there is no easily laid out shortcut for the sort of knowledge one would require in order to correctly identify the various elements which might apply to any given purchase. 

So you could refer your clients to a tax partner in your firm, or a separate tax adviser, or you could simply use Compass.  

Designed specifically to address Stamp Duty Land Tax as a whole, and developed in conjunction with tax experts and conveyancing solicitors, Compass will give the correct answer to any SDLT query quickly and efficiently.

It will also produce a CQS Compliant Audit trail for each case and will provide reference to a dedicated expert adviser where it identifies that a case is particularly complex. 

All you need to do is answer some factual questions about the purchaser, the property and, in some cases, the vendor and, voila, Compass delivers the answer – on our PII not yours!

Read this insightful article on The Stamp Duty Holiday causing Professional negligence claims – which could have been avoided by using Compass.

Best of all, Compass is designed to integrate directly into any case management system, meaning that it’s quick and easy to access, and with an intuitive interface, learning how to use it will be just as straightforward. 

There’s never been a more challenging time to be in conveyancing – why would you head out without the very best tools to navigate the process? 

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