HM Revenue & Customs has intensified its scrutiny of property transactions, with Stamp Duty Land Tax (SDLT) investigations rising 88% to 3,035 in 2024/25*, up from 1,617 the previous year, new research from accountants and business advisors Lubbock Fine shows.
The additional SDLT rate for second properties was increased from 3% to 5% in October 2024. This has created a greater financial incentive for purchasers of a second property to mislead HMRC and to claim that they do not own another home.
HMRC is believed to be mindful of people making inaccurate claims following that increase in SDLT on second homes, leading to more investigations.
Lubbock Fine says that the increased complexity of SDLT regime is leading to more people making mistakes when declaring their taxes and increased risk of being investigated by HMRC as a result.
Lubbock Fine director Graham Caddock said that the public attention around Angela Rayner’s underpayment of SDLT is likely to increase the number of investigations carried out by HMRC.
Explains Graham: “After the recent public attention around the Angela Rayner case, HMRC is likely to step up its scrutiny on second property acquisitions.”
Some HMRC investigations have involved buyers falsely claiming that they are replacing their main residence to avoid the SDLT surcharge on purchasing additional properties. Some transfer their home into a trust or to their partner before buying another property, which HMRC does not treat as valid grounds for avoiding the surcharge.
Graham says: “HMRC looks at many different factors to decide what counts as your main residence. Whether a property has been transferred into a trust or a partner doesn’t necessarily carry much weight with HMRC.”
Many SDLT investigations involve buyers wrongly assuming a property with some commercial use, such as self-contained rental flats, qualifies for a lower SDLT charge. However, that is only true in very limited circumstances. To qualify, the commercial parts must be clearly separate, unsuitable for normal living, and the commercial activity ongoing when the property is bought.
Graham says: “Many people wrongly assume that if a house has some commercial use, they can claim a lower SDLT. But if the property is still clearly suitable to live in, or if the commercial part isn’t properly separated, HMRC is likely to challenge that status.
“Similarly, if the commercial element of the property has only been added recently, HMRC is likely to claim it isn’t genuine and has been set up purely to obtain a tax advantage. That can end up costing people large penalties.”
The taxman has also been cracking down on what it describes as “bogus” claims for SDLT refunds, where the buyer claims a property is not a residential home because it needs repairs and is not inhabitable.
Lubbock Fine warns that as the penalties can reach tens of thousands of pounds, people should seek professional advice essential to avoid making costly mistakes:
Adds Graham: “With SDLT rules becoming increasingly complex and constantly changing, people are far more likely to make mistakes. Errors can be very expensive.”
