HMRC expected to resume pre-pandemic levels of SDLT investigations

The number of Stamp Duty Land Tax (SDLT) tax investigations by HMRC has fallen by 75% in the last year, from 2,096 in 2019/20 to 529 in 2020/21, the lowest figure in five years, a Freedom of Information request from law firm Boodle Hatfield reveals.

The drop in investigations is thought to be due to HMRC diverting resources away from traditional tax compliance work and towards the administration of the furlough scheme during the pandemic. An HMRC spokesperson commented:

“throughout the pandemic, HMRC’s priority has been to deliver support to protect people’s livelihoods and support businesses. We have prioritised tackling serious fraud and criminal attacks on the tax system, while continuing wider activity to make sure individuals and businesses pay the right tax”.

But, says Boodle Hatfield, HMRC is likely to begin examining SDLT returns submitted during the pandemic now that work on the the furlough scheme has started to slow. HMRC is now returning to normal working practices and tax investigations are expected to return to pre-pandemic levels.

Kyra Motley, Partner at Boodle Hatfield, said,

“it is an astonishingly sharp drop in SDLT investigations, especially when set against the boom in residential property transactions”.

“It seems unlikely that this drop in investigations means there has been a similarly sharp drop in wrongly claimed SDLT reliefs.”

“HMRC will be keen to make up for the shortfall in investigations over the past year. We would expect them to scale up activity now that lockdown restrictions have ended and all the HMRC teams return to a more normal working environment”, she added.

The stamp duty holiday has also resulted in fewer buyers needing to pay SDLT which has also had a knock-on effect on the number of HMRC compliance checks. But analysis by property website Zoopla shows that recent house price growth has pushed 1.8 million homes into a higher stamp duty bracket, with around 940,000 properties falling into the 5% stamp duty band and an extra 130,000 buyers being pushed into the 10% band. There will also be a predicted 1.5 million property sales this year as buyers are on the lookout for larger, more spacious properties following the pandemic.

While compliance checks are used to uncover fraud where a buyer has deliberately attempted to avoid paying stamp duty, HMRC will also challenge the use of stamp duty relief on certain transactions and may investigate claims by property owners who are not trying to defraud the taxpayer but are uncertain of how the rules apply, or legitimately believe they are entitled to relief.

Cases where such checks may apply include where relief has been sought for mixed-use properties or multiple dwellings if the property has an annexe, both of which qualify for the lower commercial rate of stamp duty.

Commenting on the FoI request, Chris Ward, Managing Director at SDLT Compass says

“Given the nature of the SDLT holiday it is not surprising that HMRC investigations dropped off during the holiday, the benefit of claiming mixed use Vs Residential rate actually reversed so became disadvantageous so many people will not have made that sort of claim.”

“Moreover claiming multiple dwellings relief may not have been advantageous except on the more expensive properties of which there are relatively few. Overall therefore this could be more indicative of the effects of the SDLT holiday and the enhanced nil rate band of £500,000 than any diversion of HMRC resources.”

“Similarly a reduction in commercial activity by property developers during the pandemic may have reduced the number of large scale multiple dwellings claims and again this would reduce the number of compliance inquiries.”

“There is no clear evidence that reliefs have been claimed in error, current experience shows that in many cases solicitors are failing to claim reliefs which are properly due rather than the other way round. What is clear that as the holiday comes to an end the benefit proposition in claiming mixed use and or multiple dwellings relief on cheaper properties will return and this, as a consequence, may lead to a rise in HMRC inquiries into such claims.”

“There is absolutely no substitute for ensuring that you obtained proper professional advice over your stamp duty liability to ensure that, if an HMRC inquiry arises, you are not at risk of unnecessary costs and losses and indeed are able to mount a proper professional defence to any assertions that HMRC might make.”

“Reliance on HMRC guidance or its “calculator” is not sufficient to prevent an inquiry and all the attendant stress and cost that it might bring.“”

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