Stamp Duty ignorance was not a reasonable excuseby
If they do not appoint a professional to act for them in property transactions, taxpayers must be sure they understand their responsibilities.
When properties are gifted or transferred to family members, most people assume they will not need the help or extra costs of a professional, as it is not a third-party sale. However, as seen in the case of Alastair Ferguson (TC8415), you must approach these types of transactions with the same amount of caution as a regular sale.
Stamp Duty Land Tax (SDLT) can still be triggered when properties are gifted, as it is chargeable on the money that changes hands, or money’s worth. Money’s worth includes any debt that is transferred.
If you give a property to someone else, make sure you factor in any debt.
Another pitfall is the requirement to update Land Registry with the change in ownership and to submit a SDLT return to HMRC.
Family house sale
Ferguson purchased a property from his son. He correctly identified that SDLT was payable on the purchase and as such £3,900 was due. However, a SDLT return was not submitted to HMRC.
A form TR1 was submitted to Land Registry and the £190 fee paid. Ferguson also mistakenly paid the £3,900 SDLT liability to the Land Registry. The TR1 form was not accepted as it was not accompanied by a SDLT5 certificate.
Ferguson decided not to use a solicitor for the purchase of the property on the basis that the purchase was from his son and that no further searches would be needed. He also thought that completing the necessary forms and filing them would be an “easy exercise”. Unfortunately, matters did not turn out as he hoped.
It is unusual for a case to be heard by the first tier tax tribunal when the amount at stake is so low, as Ferguson’s appeal related solely to the £200 late-filing penalty and accrued interest of £47.
After a lengthy back and forth with the Land Registry helpline, the SDLT funds were returned, paid to HMRC and a SDLT return submitted.
Ferguson appealed the charges on the basis that he had a reasonable excuse for the late submission of the return. The reasonable excuse was two-fold:
- Lack of awareness of the requirement to file a return
- Insufficiency of funds to pay the SDLT liability until the Land Registry returned the £3,900.
As seen in reasonable excuse cases heard for other taxes, the lack of familiarity with the reporting requirements is not a sufficient defence.
If the taxpayer states that they have insufficient funds to pay a liability, the court will review their bank balance. In this case the FTT found Ferguson did have sufficient funds to pay the £3,900 liability from his reserves.
Finally, an appeal cannot be made against statutory interest, therefore the £47 of accrued interest was upheld.
So if your client has not appointed a professional to act for them in a property transaction, advise them to read the supporting guidance so they are fully aware of all of the requirements to avoid unnecessary mistakes.