Best Practice Representative

Best Practice Representative | Published February 20 2018

Cornerstone Tax

Since David Hannah founded Cornerstone Tax more than a decade ago, the company has become a leading, tax advisor serving thousands of clients all over the world with their tax issues. In recent years, they have identified a worrying number of examples where clients have overpaid stamp duty when buying a property. David Hannah explains how these overpayments are being made and the potential scale of the problem based on a sample of Cornerstone’s clients. Their main point of contention is worrying: they believe that there are potentially billions of pounds owed to UK taxpayers in overpaid stamp-duty.

I am an accountant and tax advisor with more than 35 years of experience in the property tax sector. I also lecture on stamp duty for legal professionals and am a regular specialist commentator for the press and media – including The Financial Times, The Telegraph, The Times, Estates Gazette, Lawyer Monthly and Accountancy Today .

Stamp duty, now known officially as stamp duty land tax, or SDLT, has undergone more alterations than almost any other tax since its inception in 2003. The legislation governing it contains numerous exemptions and reliefs, of which many people are unaware. These include many professionals practising in the legal and property sectors. This not only causes frequent errors in calculating the tax and advising clients on the sum due, but it also increases the risk for firms dealing with buying property for clients, creating concern that they may be sued or discredited for giving the wrong advice.

Most recently in the spotlight, and often misunderstood, is the 3 per cent surcharge on second homes, introduced from April 2016. This was designed to restrict the expansion of buy-to-let and second home purchases and encourage a release of properties for owner occupiers and first-time buyers, but in this regard, the tax has had limited success. First-time buyers, parents helping their children to buy and married couples moving to a new house or flat have often actually found themselves disadvantaged, whereas the data suggests little, if any, impact on the rental market.

In a recent case, one Cornerstone client bought a flat solely in his own name and listed his girlfriend as a guarantor and borrower on the mortgage. Advised by his solicitor that because his girlfriend already owned a different flat, he was liable for the 3 per cent surcharge, he paid £14,000 in stamp duty. When our advisors analysed this purchase, the client’s correct liability for stamp duty was found to have been only £5,000. He had incorrectly paid nearly three times as much and was due a substantial refund.

Stamp duty represents a significant and growing proportion of the total revenue collected by HMRC in England and Wales. In the tax year to April 2017, a total of nearly £12 billion in stamp duty was collected, an increase of 10 per cent on the previous year.

Last November, the Telegraph reported official figures from HMRC that revealed it was refunding £10 million a month on incorrect calculations of the 3 per cent surcharge alone. Approximately half of the successful refunds Cornerstone has achieved for its clients are for individuals who have paid twice as much or more than they should have. Based on this information, Cornerstone believes that there are potentially billions of pounds owed to taxpayers in the UK in overpaid stamp duty. Establishing whether an overpayment has potentially been made is the first step to understanding whether you may be owed money by HMRC. Most people, unfamiliar with the intricacies of tax law, would need to rely on specialists like Cornerstone to examine their transactions to even find out.

The complexities of stamp duty require significant investment and collaboration to better educate those who must apply it on behalf of the general public. Solicitors are generally inclined to view stamp duty as a simple levy calculated from fixed percentages and applicable on either a residential or commercial basis. Additionally, secretaries and paralegals, who often complete the paperwork in legal firms, are usually unaware of stamp duty’s nuances and various allowances, exemptions or classifications.

The Solicitors Regulation Authority, or SRA for short, has also proven unhelpful in this area. It has remained mostly silent on stamp-duty except in relation to “aggressive avoidance” as defined by HMRC (illegal tax avoidance to you and me). It is still unclear whether this regulatory body is aware there is any wider issue with stamp-duty and that solicitors have poor knowledge of the subject. The exception to this is the aformentioned limited extent of telling firms to avoid bringing the profession into disrepute by engaging in avoidance schemes. Solicitors are therefore caught between a rock and hard place. They risk being sued by clients who discover that they were wrongly advised, and are reluctant to challenge misconceptions of a tax about which their regulator has delivered several firm but frustratingly vague warnings. The outcome of this unsatisfactory situation is the risk of financial damage and disrepute for solicitors’ firms and a great many taxpayers being left out of pocket.

There is an ingrained public scepticism towards tax advisors, an existing view that we are out to beat the system and support those looking to avoid tax. Like many professions, we have been let down in the past by a small group of firms aggressively pursuing an agenda of tax avoidance. This has been most recently highlighted by the Paradise Papers story, which gained huge media attention when high-profile clients were named and shamed, irrespective of whether they had broken the law or not.

Cornerstone sees the issue of stamp duty overpayments as an opportunity for changing these existing perceptions. We take pride in claiming refunds for people who have overpaid stamp duty, like our first-time buyer and his girlfriend, as well as helping property and legal firms develop the correct in-house expertise to mitigate the risk of miscalculations.

One of the major challenges to overcome is the long-standing adversarial approach to tax advisors by HMRC. We must foster a culture between the public and private sector of paying the right amount of tax, not simply the maximum, or indeed the minimum. Like many others, I would welcome collaboration between private tax advisors like Cornerstone and HMRC, with the intention of working together to simplify the stamp duty system and help address these issues. There is a growing need for a simplified stamp duty system that is more clearly understood and capable of being agreed outside of court. Achieving this would save the government, companies and the taxpayer significant sums of time and money.

See Cornerstone in the Accountancy and Financial Services edition on page 27: