Stamp duty land tax (SDLT) reclaims on rescinded contracts?

The issue

It is fairly common for contracts involving land purchases to be rescinded, meaning that in practical terms the contract is ‘undone’ and treated as not having happened. There will also be cases where a contract is rescinded and a buyer has already paid SDLT. It seems unfair that a purchaser should take the hit for SDLT when he or she has not actually acquired the property and so the question arises about whether the SDLT can be reclaimed.

The legislation allows SDLT to be reclaimed in cases where a contract has been ‘substantially performed’ before completion. Although SDLT is usually triggered by completion, the main examples of substantial performance which can trigger an earlier date are as follows:

1. When possession is taken of the property.
2. When 90% of the consideration is paid.

Examples of when this might happen would be either:

• if a retailer is allowed entry to a property to undertake fitout work (taking possession) or,
• in certain cases, where a purchaser ‘pays’ for a lease upfront by taking what is effectively a mortgage from the vendor, which will often be a property development company (consideration paid).

Time limit

The above legislation is fairly well known but until fairly recently HMRC would reject any reclaims made over a year and 14 days from the SDLT filing date. This is based on the fact that ‘except as otherwise provided’ a return cannot be amended beyond this date. This was unhelpful in cases where rescission took place over a year after substantial performance. Fortunately, the recent case of Candy on 26 February 2020 decided that the previous treatment was wrong because cases of rescission are an ‘otherwise provided’ case.

Forbes Dawson view

This means that anybody who has paid SDLT on a contract which was ultimately rescinded should now be seeking a refund on the back of the Candy case. There are likely to be property development companies who have contracts that have been rescinded due to the fact that apartments did not get completed by the longstop date. Where purchasers triggered SDLT, they should be seeking a refund and in some cases (e.g., where the development company has ended up paying the purchaser’s SDLT bill) the benefit of this could go to the development company. As a firm we would be pleased to get involved in making these reclaims.

 

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