Residential and SDLT: unclaimed relief

An unexpected windfall

28 October 2015

Andrew Stanley explains how negligent legal advice could mean large compensation claims

Thousands of property investors, businesses and private individuals could unknowingly be entitled to large amounts of compensation due to negligent legal advice, relating to unclaimed relief on Stamp Duty Land Tax (SDLT).

Multiple dwelling relief (MDR), introduced in July 2011, is available to those purchasing more than one dwelling from the same seller (e.g. a building containing 10 flats, even if on one title), or a number of properties in a linked transaction.

For multiple acquisitions of properties bought prior to this date, SDLT was payable on the combined values of the properties purchased under the ‘slab’ system. For example, someone buying four flats in a development worth £210,000 each would have paid 4% SDLT on the total price of £840,000, the percentage that applied to properties valued between £500,000 and £1m. The SDLT payable would have been £33,600 rather than the 1% rate applicable to individual properties in the £125,000-£250,000 band.

Multiple dwelling relief is available to those purchasing more than one dwelling from the same seller or a number of properties in a linked transaction

For qualifying applicants, MDR means that the SDLT rate payable on combined value properties is based on their average value (the total value of the properties divided by the number purchased, subject to a minimum rate of 1%).

So in the given example, the SDLT payable would be £2,100 for each flat, as the average value of £210,000 falls within the 1% rate. The total SDLT due would equal £8,400, saving £25,200.

When purchasing property, investors, businesses and private individuals instruct solicitors to handle the conveyance. In many cases, this includes calculating and arranging payment of SDLT. If solicitors fail to advise qualifying purchasers about MDR and do not take this into account, the purchaser could unknowingly pay substantially more than necessary. In these circumstances, solicitors could be guilty of professional negligence.

Negligent tax advice affects millions each year. Poor advice is not necessarily negligent, but could be if it is factually incorrect, based on out-of-date knowledge or simply does not have its limitations clearly defined. Solicitors can be held accountable, and investors, businesses and private individuals are entitled to seek compensation for the losses they have suffered.

However, there are strict time limits governing when a negligence case can be made. Extending this period can only be made through the courts. Also, as time passes after the transaction date, finding or securing documents to prove what was said or done and the ability to accurately recollect events will generally become more difficult.

Bringing a negligence claim against solicitors is not straightforward and it is vital to take professional advice. A reputable claims management company that specialises in tax will be able to guide claimants through the process and undertake all actions possible on their behalf. They should work on a strict ‘no win no fee’ basis and only charge once the case is settled.

However, it is well worth claiming: in one case an investor purchased a block of 37 flats for a sum in excess of £1.5m, and was advised by his solicitor that SDLT was payable at 5%. A year later, they were advised that the correct SDLT rate was 4% and the investor could claim MDR to bring the rate down to 1%. A negligence claim was brought, which secured £45,000 of compensation for the investor.

Andrew Stanley is Managing Director at MDR Claims

Further Information 

  • This feature is taken from the RICS Property journal (September/October 2015)