A burgeoning issue has come to light as clients are increasingly requesting access to their archived conveyancing records from their respective law firms, some dating back up to 15 years.
These claims revolve around allegations that their lawyers incorrectly computed Stamp Duty Land Tax (SDLT) during property transactions.
This development has the potential to create a significant predicament for law firms and Professional Indemnity Insurers, as clients contemplate pursuing professional negligence claims against their legal representatives. Cornerstone Tax – the UK’s leading property tax specialists – have already successfully assisted 180 affected clients in this area, boasting a 100% success rate, resulting in savings totalling an impressive £5,895,557.00, with an average of £32,753.09 per client.
No firm, regardless of its status as a Top 200 firm or a local high street practice, is exempt from the prospect of facing such claims and no restrictions are placed on the number of claims that can be initiated. The root of this issue lies in lawyers’ lapses in maintaining a comprehensive understanding of the ever-evolving landscape of practices, legislation, and legal precedents relating to SDLT at the time of providing professional services to their clients.
Consequently, these legal practitioners may inadvertently provide inaccurate advice, which undermines their ability to act in their clients’ best interests. Highlighting the scale of the issue in terms of general stamp duty overpayments to HMRC, recent figures from Cornerstone Tax have revealed that the firm has successfully secured the return of a total of £30,000,000 in reclaimed fees from over the past three years. Furthermore, proprietary research conducted by Cornerstone has unveiled a startling statistic: a staggering 61% of homeowners have never contemplated the possibility of errors in their paid stamp duty.
Of growing concern is the tendency among a rising number of legal professionals to incorrectly advise these errors, normalising what should be regarded as negligent practices. Cornerstone’s clients have confirmed that they have instructed their lawyers to bring professional negligence claims against their legal advisers for failing to correctly advise the correct amount of Stamp Duty that was payable when commercial property was transferred to their pension funds.
These are common transactions between partners, and as they are connected, no Stamp Duty should have been paid out of their pension funds. One of the claims relates to a £200,000 claim against a Top 200 law firm for failing to advise that one of the 50 available Stamp Duty reliefs was available for the property transaction.Another claim is for £90,000 where a Tier 2 International private client law firm failed to advise that there was no Stamp Duty payable when there was a transfer of a property from a family partnership to a trust.
This situation underscores the heightened need for individuals across the UK to seek expert guidance to determine whether they have been overcharged on stamp duty, particularly in light of HMRC’s substantial refunds to homeowners and the proliferation of legal actions against law firms nationwide.
Notably, this issue has emerged at a time when professional liability insurers are increasing the premiums that they are charging for indemnity insurance, and in addition they are considering whether to allow the insurance policies to be renewed. This highlights the imperative for all conveyancing professionals and their risk management departments to consider the substantial financial ramifications of even a single miscalculated claim.
Pension-related transactions have emerged as a prominent source of these errors, as businesses frequently sell their properties to their pension funds as part of retirement planning. This revelation was made by Cornerstone Tax in 2020, notably in relation to Small Self-Administered Schemes (SSASs) and Self-Invested Personal Pensions (SIPPs). Some solicitors and advisors may have erroneously advised their clients to pay stamp duty when it was not required, potentially entitling up to 75,000 individuals to compensation, each potentially exceeding £80,000.
Should lawyers handling SIPPs remain unaware of the statutory provisions exempting SDLT, it could result in dire consequences. The beneficiaries of SIPPs may remain oblivious to the fact that the value of their pension funds has been diminished due to the erroneous payment of SDLT. It is estimated that thousands of these transactions occur annually.
Cornerstone Tax commented:
“By conducting a thorough analysis, seeking professional advice, and understanding the applicable regulations, you can minimize the risk of overpaying SDLT. However, if an overpayment does occur, initiating a review promptly allows you to rectify the situation, gather evidence, and pursue appropriate actions to claim a refund or make adjustments as required.”