Solicitors have been telling prospective homeowners to pay thousands of pounds of stamp duty upfront needlessly, and then reclaim it from HM Revenue & Customs if it is wrong, a consumer advocate has claimed.
Richard Smith, founder of financial education firm MoneyTrainers, said he has seen some cases in recent months where couples are separating, but the solicitors involved in the house transaction "do not understand what the issues are in relation to stamp duty".
As a result, he said these people have been stung for several thousand pounds upfront because the 3 per cent stamp duty surcharge on second homes has been wrongly applied, with the expectation clients can reclaim it from HMRC down the line.
He said: "I do a lot of financial mediation especially on divorce and separation, and I have seen a couple of cases where non-married couples are separating, and one partner has a buy-to-let property, to which the other partner has no legal claim or entitlement.
"However the partner has been forced to pay the additional 3 per cent stamp duty as if they had a legal claim on that buy-to-let. I don't think solicitors understand what the issues are in relation to stamp duty.
"It seems the solicitor would rather encourage the client to pay the tax, and then claim it back [through HMRC] rather than risk getting it wrong."
He said in some cases, this is adding thousands of pounds onto the upfront costs of a person getting a home - a cost many people can ill-afford.
Mr Smith added this was not so much the case with larger firms, or solicitors who have a specialism in tax or divorce, but the smaller ones were being particularly problematic.
"The regional ones seem to be treating conveyancing as an admin function. Yes the additional stamp duty rules are another layer of complexity but the problem of solicitors making people pay out unnecessarily seems to be growing.
"It appears to me the solicitors' default position is to err on the side of safety, and say 'Pay it now and then claim it back if incorrect'. It is possibly a professional indemnity issue for the solicitors."
Mr Smith said he believed this sort of problem would become more prevalent, and warned that clients might not always know they are able to claim the money back from HMRC.
His warning came after a customer, Colette Bremang, contacted FTAdviser to tell of her experience fighting against a £10,000 extra charge that her estate agents and their panel of solicitors were trying to force her to pay because they had not read properly the HMRC rules around the stamp duty charge.
The Solicitors Regulation Authority (SRA), being a principles-based regulator, rather than a rules-based regulator like the Financial Conduct Authority, has nothing in its code of conduct which relates to areas of practice and how solicitors should operate in those areas.
However, principle 10 talks of protecting client money and assets. Should the solicitor believe it is in the individual's best interest to pay the 3 per cent additional stamp duty rather than risk a fine, there could be an argument this is the solicitor acting with regard to principle 10.
However, Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, said his members have not noticed any particular issue with solicitors.
He said: "There has been an ongoing issue with conveyancing in particular in terms of delays in the chain, but no complaints that solicitors are not treating conveyancing seriously enough."
Since the government's additional 3 per cent stamp duty land tax (SDLT) was applied to buy-to-let properties in 2017, HMRC has confirmed many people have been caught out by the tax unnecessarily - with more than 15,700 individuals wrongly paying the charge.
A spokesman from the Law Society of England and Wales said the society had been raising concerns with HMRC over the complexity of the new SDLT rules and their implementation.
The spokesman said: "The introduction of higher rates of stamp duty land tax have led to increasingly complex rules regarding tax payable on property transactions.
"In some cases, HMRC recommends home buyers pay the higher rate up front and apply for a refund, particularly when they buy a new primary residence before the sale of their existing. This has led to greater expense up front for home buyers.
"We have raised concerns with HMRC about the lack of clarity in parts of their guidance which has led to unnecessary confusion for solicitors and their clients.
"As part of the government’s consultation on improving the home buying process, we called for consumers to be provided with more up front information about fees such as stamp duty land tax. We hope the government will take action to protect consumers and ensure they have all available information to make an informed decision when buying a home."
simoney.kyriakou@ft.com
