Thousands of property investors and landlords in the private residential sector could unknowingly be entitled to tens or even hundreds of thousands of pounds worth of compensation for negligent legal advice, relating to unclaimed tax relief on Stamp Duty Land Tax (SDLT).
Multiple dwelling relief (MDR) is a lesser known form of tax relief introduced in July 2011. It changes the way SDLT is calculated on purchases of multiple properties, saving investors enormous sums.
However, MDR is commonly overlooked by lawyers, meaning property investors often pay substantially more SDLT than they need to. Property investors can get this money back and claim compensation for negligent legal advice.
Multiple dwelling relief (MDR):
MDR, introduced in July 2011, is available to those purchasing more than one dwelling from the same seller (e.g. a building containing 10 flats, even if on one title), or a number of properties in a linked transaction.
For multiple acquisitions of properties bought prior to July 2011, SDLT was payable on the combined values of the properties purchased as specified by the old ‘slab’ SDLT system.
For example, someone buying four flats in a development worth £210,000 each would have paid 4% SDLT on the total price of £840,000, being the percentage that applied to properties valued between £500,000 and £1m. The SDLT payable would have been £33,600 rather than the 1% rate applicable to individual properties in the £125,000 to £250,000 band.
For qualifying applicants, MDR means that the SDLT rate payable on a combined value properties is based on their average value (the total value properties divided by the number purchased, subject to a minimum rate of 1%).
So in the example above, the SDLT payable would be £2,100 for each flat, as the average value of £210,000 falls within the 1% rate. The total SDLT due would equal £8,400, a massive saving of £25,200.
Negligent legal advice:
When purchasing property, investors, businesses and private individuals put their faith in solicitors, who are responsible for handling the conveyance. In many cases this includes calculating and arranging payment of SDLT.
If solicitors fail to advise qualifying purchasers about MDR and do not take this into account when calculating SDLT, the purchaser could end up paying substantially more than necessary, leaving them unknowingly tens of thousands of pounds out of pocket. In these circumstances, solicitors could be guilty of professional negligence.
Negligent tax advice is surprisingly rife when it comes to real estate and affects millions each year. Poor advice is not necessarily negligent simply because it is poor. However, if advice is factually incorrect, based on out of date knowledge or simply does not have its limitations clearly defined it could be negligent.
Thankfully, solicitors can be held accountable for professional negligence. Investors, businesses and private individuals are entitled to seek financial compensation for the losses they have suffered by means of a professional negligence claim.
Why the urgency?
Unfortunately, there are strict time limits on when a negligence case can be made. Extending this time period is possible, but with difficulty and only through the courts.
Also, as time passes after the transaction date, finding or securing documents to prove what was or wasn’t said or done as well as the ability to accurately recollect events will generally become more difficult.
How do I claim?
Bringing a negligence claim against solicitors is not straight forward. It is vital to take professional advice and seek a claims management company that specialises in tax.
Any claims management company worth its salt will guide claimants through the process and undertake all actions possible on their behalf to avoid unnecessarily utilising their time. They should work on a strict ‘no win no fee’ basis and only charge once the case is settled.
It is well worth claiming. In one recent case an investor purchased a block of 37 flats for in excess of £1.5m. The investor’s solicitor advised SDLT was payable at 5%.
A little over a year later the investor consulted our claims management company, and we advised the correct SDLT rate was 4% and that the investor could claim MDR to bring the rate down to 1%. We brought a negligence claim and secured £45,000 of compensation for the investor.
Andrew Stanley, MD, MDR Claims – www.mdrclaims.com