You could have overpaid Stamp Duty!
In today’s Tax Tip, we examine how HMRC’s pension error led thousands of people to pay SDLT out of their pension funds without being liable.
We will cover:
- Why you should reclaim SDLT (Stamp Duty Land Tax)
- How HMRC’s information led to many overpaying SDLT
Stamp Duty and pension funds
One of the benefits of pension funds is that you can safeguard your earnings free of tax.
However, there are situations when you might end up paying tax, such as Stamp Duty Land Tax, in the case of transferring a property.
Stamp Duty tax relief: the many (unknown) scenarios
Stamp Duty Land Tax is paid as a percentage of the chargeable consideration in a property transaction.
There are many situations which, according to HMRC, make you exempt from SDLT.
The problem is that law firms, pension trustees or administrators are usually the ones who deal with SDLT, and they’re usually unaware of the many existing specialist tax scenarios in which you don’t have to pay SDLT.
No SDLT is liable for partnerships
One of the scenarios in which you are not liable for SDLT is when there is a business partnership.
In other words, if the buyer or seller is involved in a partnership, the property transaction may not be liable for SDLT.
Transfers of interests in partnerships other than property investment partnerships are not generally chargeable to SDLT.
HMRC Pension Error: Transferring Property in a Partnership
Property transactions between multiple owners and connected parties might have no Stamp Duty liability.
According to HMRC, you may be entitled to SDLT repayment if…
- You sold to one or more pension funds and were a partnership or LLP at the time of the sale
- You sold to a multi-member pension scheme or to multiple pension schemes and were a limited company.
The issue is that many financial advisers have advised clients to put business property into their personal pension funds.
There’s nothing wrong with this, however, they were also unaware of the SDLT exemption cases.
Furthermore, according to former pensions minister Ros Altman,
“Advisers were led to believe, by many industry leaders, that property could be transferred ‘in specie’ without losing tax exemption.”
However, this was wrong, as HMRC only recognises transfer of property in cash as having tax-free status.
The erroneous guidance resulted in thousands overpaying Stamp Duty.
Pension schemes could have lost on average, £50,000 in investable funds and growth as a result of this stamp duty error, and the cases could in reality amount to many thousands.
In conclusion, make sure you’re aware of the rules, to know what you could be owed.
As you only have four years to make a claim, it’s urgent to seek specialist tax advice.
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Kind regards Ilyas