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SDLT reforms: Cutting out the confusion

Solicitors and tax advisers need to work in tandem to provide the right property tax advice to their clients and instil confidence in the market, recommends David Hannah

20 September 2016

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The complex, ever-changing arena of
the UK tax system
has always required a high
level of practical, strategic consideration to fully comprehend – yet the recent stamp duty land tax (SDLT) reforms have taken this to a new, unprecedented level.

With consumers and professionals alike finding themselves buried beneath the intricacies of the legislation, it is incredibly important, now more than ever, that buyers be fully informed of their tax exposures, in order to maintain a healthy residential market.Due to the complexity of the new 3 per cent ‘second homes tax’, huge disparities in tax advice and calculations are taking
place across the board. This is placing immense pressure on purchasers, conveyancers, and other professional services to
act as seasoned tax advisers for transactions when, more often than not, they are ill equipped
to do so.

Two-thirds of the enquiries
we have received, each seeking strategic, regulated advice on the new 3 per cent surcharge, have been from solicitors, highlighting not only the complexity of the system, but the legal profession’s recognition that this new SDLT path is one best trod with caution.

We have already seen numerous cases where clients choose to challenge the amount of SDLT that they have been charged. This has the very real capability to put solicitors at risk: professionally, their credibility could suffer where they have advised a client to overpay tax and subsequently received a complaint, and legally, any sign of overcharging a client could result in the individuals facing regulatory action themselves.

Source of confusion

The details of the SDLT reforms remain unclear and the ways
in which the rules should be applied lack clarity, especially
in terms of the classification
of property types. Confusion commonly occurs surrounding connected transactions, where market value was incorrectly used, or where multiple dwellings relief was not claimed where it could have been.
One client bought a house
for £3.5m and paid residential stamp duty when she clearly should have claimed mixed use. The difference in tax in this case was £170,000 – in reassessing her claim, she reduced her tax bill by 50 per cent.

Another prime example is
the new 3 per cent surcharge legislation’s treatment of married couples, with homeowners finding themselves liable to pay staggering amounts of tax that would not be enforced were
they cohabiting.

It is also often overlooked by solicitors that the law states that if a main home has been sold before November 2015, then the vendor is free to purchase a new property before November 2018, without paying the surcharge. This concession
was introduced to ensure
that parties would not find themselves paying the surcharge for a property that would be classified as a main residence where they had sold one prior to the 3 per cent surcharge being announced, but it is one that solicitors,
and even HMRC, fail to take
into consideration when advising clients.

New working relationship

Such cases, in which consumers have found themselves assessing conflicting advice from solicitors, conveyancers, and HMRC, demonstrate the need for a stable partnership,
in which tax and legal professionals collaboratively pursue legitimate solutions for clients. Such a relationship would de-risk the conveyancing process – since liability for error will sit with the solicitors, it is therefore in the legal services’ best interests to align their readings of the new reforms, limiting, where possible, uncertainty. We are finding that solicitors are simply washing their hands of the 3 per cent reform, throwing responsibility onto their clients, which in the long term is not a viable solution.

Such confusion caused by
a complex, intricate system is,
in some cases, enough to put homebuyers off the process altogether, thus countering
the initial intentions of the legislation.

While the reforms seemed
like a good idea at the time, what the market needs now is a boost, and such an uplift can’t happen without solicitors and tax advisers coming together
to operate in tandem, entering into a new working relationship based on mutual understanding
and respect, underpinned
by a fundamental objective
to protect our clients.

For consumers, we, the property professional advisers, need to instil confidence in the market by making the process of residential purchasing as streamlined and professional
as possible.

At the moment, the confusion and inconsistency around the
3 per cent surcharge seems to be getting in our way. SJ

Categorised in:

Tax & Wealth structuring

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tax stamp duty land tax HMRC