Upper Tribunal grants UK taxpayer refund of SDLT after following HMRC guidance

The Upper Tribunal ruled HMRC was not precluded from granting overpayment relief to BTR Core Fund JPUT after an error in the rate at which SDLT had been paid.

BTR had acquired the West Tower build-to-rent property in Manchester, made up of 350 residential dwellings and two commercial premises on the ground floor.

It had filed a SDLT return and paid its SDLT in accordance with that return on time, to a total £4,702,886. However, the firm later wrote to HMRC to claim overpayment relief of £2,927,725 on the basis that there was an error in the previous SDLT calculation.

BTR had filed its return claiming multiple dwellings relief at the higher rates of residential SDLT, which was in accordance with revenue’s guidance at the time; but HMRC subsequently amended its guidance for transactions such as West Tower, where there were genuine commercial premises. As BTR was unable to amend its claim by the time the guidance changed, it claimed overpayment relief.

HMRC made the relevant SDLT repayment plus interest. However, it opened a check into the claim and on 25 March 2022 issued a closure notice refusing the relief, as it said the overpayment was excessive because “of a mistake in a claim”, which is among the circumstances in the Finance Act 2003 where HMRC is prevented from returning overpayment. 

BTR appealed this decision on 8 April 2022, requesting independent review – which was upheld that September, leading to the firm appealing to the First-tier Tribunal. That appeal was dismissed, which in turn led to the Upper Tribunal appeal.

The case hinged on whether the overpayment was excessive “by reason of a mistake in a claim”, which would determine whether BTR qualified for their claimed refund.

The Upper Tribunal considered that the purpose of the overpayment relief provisions is to provide a remedy - separate from amending the return - with its own time limit, where the time limit for amending the return has expired, but that that remedy was only available in tightly defined circumstances. It concluded that the purpose of the case A restriction is to prevent a taxpayer from extending the time limits for making or amending a claim or otherwise avoiding the conditions for a claim or election by way of making an overpayment relief claim, and that the phrase “by reason of a mistake in a claim” can be answered by looking at this question: “What was the reason for the overpayment and was that reason a mistake in a claim?”.

The Upper Tribunal ruled that although a mistake had been made by using the wrong rate for calculating the tax, the requirements of making a claim for multiple dwellings relief in the SDLT return do not require quantification. It therefore concluded that the error made was not a mistake in the claim. This meant that HMRC was not precluded from granting overpayment relief.

Jake Landman, a tax disputes expert with Pinsent Masons, said, the ruling highlighted the narrow line between what is and is not inside the scope of a claim.

“After a rare split FTT decision, this result saw the taxpayer succeed with quite a technical argument regarding how the MDR code operates,” he explained.

“The UT was clear that this decision was not based on any questions of fairness arising from the fact that the overpayment of SDLT had been a direct result of the taxpayer following HMRC guidance that turned out to be wrong and was not corrected until it was too late for the taxpayer to amend its return.

“What is also clear from the decision is that the dividing line about what is constituted in the claim itself and what is outside the claim will vary depending on the specific legislative provision. Careful consideration of the claim provisions will be important in every case when assessing if overpayment relief is available.

“It remains to be seen if HMRC will seek to appeal.“