HM Revenue & Customs (HMRC) has significantly increased its scrutiny of property transactions involving second homes and buy-to-let properties, resulting in a reported 88 percent rise in Stamp Duty Land Tax (SDLT) investigations for the 2024/25 financial year.
The number of SDLT investigations reached 3,035, compared to 1,617 in the previous year, according to analysis by accountancy firm Lubbock Fine. This sharp increase comes amid changes to tax rates and growing public focus on compliance, with experts highlighting the heightened risk of errors and substantial penalties for those making incorrect claims.
Surge in Stamp Duty Land Tax investigations
Data from Lubbock Fine indicates that SDLT investigations by HMRC have increased from 1,617 in 2023/24 to 3,035 in the current financial year, representing a significant escalation in enforcement activity.
This surge follows updated legislation and reflects HMRC's commitment to tackling suspected tax non-compliance within the residential property sector. Accountants note that HMRC's enhanced enforcement strategy has led to a greater number of buyers being subjected to review,
Particularly where transactions relate to secondary properties or investment purchases.
Policy changes increase financial incentives and risk
In October 2024, the surcharge on SDLT for additional residential properties rose from 3 percent to 5 percent. This policy shift created stronger financial incentives for some purchasers to misrepresent their status as owning only one property.
As a result, HMRC has become increasingly vigilant in examining claims made during property transactions. According to Lubbock
Fine, this change has contributed to a growing number of investigations, as individuals attempt to avoid the higher tax by claiming exemptions or by providing inaccurate information.
Increased complexity leads to more errors
Tax advisers have observed that the SDLT system has become notably more complex following recent amendments. Graham Caddock, director at Lubbock Fine, said that changes add layers of difficulty for buyers, increasing the likelihood of mistakes or misunderstandings when completing tax returns.
He explained, 'With SDLT rules becoming increasingly complex and constantly changing, people are far more likely to make mistakes. Errors can be very expensive.'
Impact of public attention on enforcement
Recent high-profile cases involving public figures have also contributed to heightened enforcement, according to Lubbock Fine. Graham Caddock noted that scrutiny of political and public sector leaders’ property transactions has drawn further attention to compliance,
informing HMRC's decision to step up investigations. 'After the recent public attention around the Angela Rayner case, HMRC is likely to step up its scrutiny on second property acquisitions,' Caddock explained.
Investigative focus on false main residence claims
One focus for HMRC investigations is sellers or buyers who claim to be replacing their main home, thereby seeking exemption from the additional SDLT surcharge. Tactics such as transferring assets into trusts or to partners before making a new purchase have reportedly been scrutinised and are rarely accepted as legitimate reasons for exemption.
Caddock observed that HMRC will assess various factors when determining an individual’s main residence, stressing that transferring ownership to a partner or a trust may not satisfy HMRC’s tests.
Final Summary
HMRC’s robust approach to enforcing SDLT rules on second homes and investment properties has resulted in a marked increase in investigations over the past year.
Policy changes, increased scrutiny on high-profile transactions, and the growing complexity of SDLT legislation are all contributing to greater risk for buyers, who may face significant financial penalties for errors or misrepresentations.
Accountancy experts emphasise the importance of taking professional advice to navigate these complexities and ensure full compliance. For those needing to keep track of property transactions and tax obligations with greater accuracy, applications such as Pie may offer practical support.
