Common HMRC mistake saw one homeowner scoop £18.5k refund – could you be owed money?

One homeowner has shared how they managed to receive a refund of £18,500 from HMRC after he had been mistakenly charged stamp duty.

Peter Loyal, 68, based in Leicestershire owned a property which he wanted to transfer into a pension trust scheme. This would see the value of the property classed as a pension contribution instead of a cash payment.

The property was transferred into pension scheme at the value of £580,000 in 2016. As Peter rented out the property, it was classed as a "property investment partnership" and in HMRC's eyes, he had to pay stamp duty on it, totalling £18,500.

However a few years after the transfer was done and the stamp duty was paid, Peter's accountant discovered that he didn't need to pay stamp duty at all. Under HMRC rules, if the partnership scheme and the pension scheme are "connected" then no stamp duty payments are due.

As Peter never needed to pay stamp duty, he had actually overpaid and was due a refund of the entire £18,500 payment he had made to HMRC. Peter's accountant directed him to property tax specialist firm Cornerstone.

Cornerstone claims Peter isn't the only person who has paid stamp duty when they didn't need to. The tax specialists claim that the average overpayment to HMRC currently sits at £27,000.

According to Cornerstone, pensions are often the "major source of errors" as businesses often sell their premises to their pension fund as part of retirement planning. Errors are said to have been made when solicitors mistakenly assumed that stamp duty must be paid on the transfer of property from multiple owners into Small Self-Administered Schemes (SSASs) and Self-Invested Personal Pensions (SIPPs). Based on figures released by the firm, up to 75,000 people could be owed compensation of up to a staggering £80,000 each.

Cornerstone submitted the claim for a refund for Peter's £18,500 in October 2019 and after some back and forth between Cornerstone and the tax office - Peter finally received his refund of £18,500 - plus £352.77 extra from interest in March 2020.

Peter said: “I was introduced to Cornerstone by my accountant, who notified me that there was a possibility I had been overcharged on stamp duty when transferring my property into my pension. Cornerstone investigated my transaction and found that I had overpaid on stamp duty, and they were successful in reclaiming a refund for me from HMRC. Both my accountant and Cornerstone were a pleasure to deal with and were efficient at gaining the refund for me.”

Group Chairman of Cornerstone Tax, David Hannah, said the overpayments occurred because people were simply not aware of and did not utilise the reliefs and exemptions which are in place under HMRC rules. Cornerstone says it has successfully reclaimed over £30million in overpaid stamp duty fees over the past three years alone through commonly overlooked stamp duty reliefs linked to Multiple Dwellings Relief, Uninhabitable Status and Pensions.

David said: "By conducting a thorough analysis, seeking professional advice, and understanding the applicable regulations, you can minimize the risk of overpaying stamp duty. However, if an overpayment does occur, initiating a review promptly allows you to rectify the situation, gather evidence, and pursue appropriate actions to claim a refund or make adjustments as required.

An HMRC spokesperson told the Mirror: "Many of the Stamp Duty Land Tax (SDLT) claims we receive from repayment agents are wrong and some will make incorrect claims just so they can charge a fee. People should be very careful before allowing an agent to make SDLT claims on their behalf. Where a SDLT repayment is due, on average more than 90% are paid within 15 days."

What is stamp duty?

Stamp duty is a tax paid when purchasing a property. How much you pay depends on the value or the property, if you're a first-time buyer, or if you're purchasing an additional property.

In England and Northern Ireland, stamp duty for a main residence home is paid at a rate of 5% for properties worth above £250,000 and less than £925,000. If your property is worth more than £925,000 and less than £1,500,000, the stamp duty owed is 10%.

When the property is worth over £1,500,000, stamp duty of 12% is owed. First-time buyers only pay stamp duty if the property is worth over £425,000.

In Scotland, stamp duty is called "land and buildings transaction tax" (LBTT) and the rates are different to England and Wales. Buyers pay no Stamp Duty on properties up to £145,000 - or £175,000 for first time buyers. They then pay 2% on properties priced up to £250,000, and 5% on properties priced to £325,000. Buyers will have to pay 10% on properties priced up to £750,000 and 12% on those above this.

In Wales, stamp duty is called land transaction tax (LTT). The thresholds and rates are different to those in England/Northern Ireland and Scotland, and there is no extra relief for first-time buyers. Home buyers don't have to pay on properties priced up to £225,000, they pay 6% on properties priced up until £400,000, 6% on those up to £750,000, and 10% on properties prices up to £1.5million. Stamp Duty sits at 12% on homes over this.