• Landmark Court of Appeal decision confirms that properties needing repair remain chargeable to residential rates of SDLT.
• Homebuyers warned about rogue agents advertising misleading SDLT repayment claims.

Homebuyers are being warned to avoid Stamp Duty Land Tax scams, following a landmark Court of Appeal decision.

HM Revenue and Customs (HMRC) is warning people purchasing properties to be vigilant of tax agents offering to secure Stamp Duty Land Tax (SDLT) repayments on their behalf where repairs are needed to a property they have bought.

Some agents have suggested that, for a fee, they can reclaim SDLT the buyer has already paid by saying that the property is non-residential because it’s uninhabitable. But making claims of this kind often leave the homeowner liable for the full amount of SDLT, plus penalties and interest.

A recent Court of Appeal judgment in the case of Mudan & Anor v HMRC has confirmed that housing (“dwellings”) in need of repair are chargeable at the residential rates of SDLT, and that repayment claims based solely on a property’s condition are not valid.

This decision confirms HMRC’s long-standing view that if a property requires repairs but retains the fundamental characteristics of a dwelling, it is still suitable for use as a dwelling and attracts residential rates of SDLT. A key factor in determining suitability is whether a property had been previously used as a dwelling.

HMRC is taking decisive action on spurious SDLT repayment claims, using civil and criminal powers to deal with the minority who undermine the tax system.

Anthony Burke, HMRC’s Deputy Director of Compliance Assets, said:

The Court of Appeal’s decision is a major win, protecting public funds. Homebuyers should be cautious of allowing someone to make a Stamp Duty Land Tax repayment claim on their behalf. If the claim is inaccurate, you could end up paying more than the amount you were trying to recover.

As an example, if Joe bought a house in London for £1,100,000 and his solicitor filed the SDLT return, SDLT was calculated at the residential rates (£53,750). As the house required modernisation and repair, Joe couldn’t move in straight away. The house needed a new boiler, rewiring and damp proofing.

Shortly after moving in, Joe received an advert in the post from a repayment agent which incorrectly suggested that due to the required repairs they could get him a refund of SDLT on a ‘no win, no fee’ basis. In Joe’s case the refund amounted to £9,250 (the difference between residential and non-residential rates), less the agent’s 30% fee. Joe agreed for the agent to make a claim on his behalf, and he received his repayment. Later in the year, HMRC opened a compliance check into the repayment claim and concluded that the property was residential. 

Consequently, Joe found out that he owed £9,250 SDLT, plus interest and a penalty, even though the agent only sent him £6,475, after deducting their fee. He is now out of pocket as the agent refused to cover the interest and penalty and the agent has since refused to respond to his emails and phone calls. 

Further information

For more information visit HMRC’s Stamp Duty Land Tax guidance

SDLT is a self-assessed tax, so when claiming a repayment of SDLT it is the responsibility of the taxpayer to get it right.

In the case of Mudan & Anor v HMRC, the claimant had requested a refund of SDLT paid on a property transaction from August 2019. The property was in a poor state of repair. Their claim was submitted by their tax agent who persuaded them that the condition of the purchased property would qualify for a repayment. The dispute centred on the definition of residential property for SDLT purposes, and specifically whether the legal term ‘suitable for use as a dwelling’ meant that the purchaser should be able to move in straight away.

The primary findings from the Upper Tribunal decision include:

• being suitable for use as a dwelling does not mean the same thing as ready for immediate occupation
• taxpayers should assess to what extent the building has the fundamental characteristics of a dwelling, and is structurally sound
• if a property has previously been used as a dwelling, this will be relevant for considering whether it is suitable for use as a dwelling
• the question to consider is whether the defects have the result that the building no longer has the characteristics of a dwelling

The Court of Appeal firmly dismissed the appeal, finding that the Upper Tribunal decision was legally sound, and that the principles laid down in that decision are practical and workable. The decision confirms that the definition of ‘residential property’ should be considered against its statutory context, bearing in mind what the “ordinary speaker of English” would characterise as residential property (that being the “sort of property that people live in”). Past use of the building and whether it retains its identity or character as residential property, despite any disrepair and the requirement for renovations, will therefore be important considerations.

HMRC has a high success-rate litigating cases where the refund claimed is not due. We encourage customers to carefully consider the terms of engagement with the reclaims specialist including understanding any fee that might be taken.

Where a claim is due, it can be made directly by the customer at no cost.