HMRC stamp responsibility investigations on the rise as officers listen in on households they think of failing to pay – here is what they’re on the lookout for

HMRC stamp duty investigations are on the rise after Angela Rayner was caught having not paid the correct amount of tax last year, new figures suggest.

Ms Rayner resigned as Deputy Prime Minister and Housing Secretary in September after it was found she broke the Ministerial Code when she underpaid about £40,000 of stamp duty on an £800,000 seaside apartment in Hove, East Sussex. 

HM Revenue & Customs (HMRC) has intensified its scrutiny of property transactions, according to new research from accountants and business advisors Lubbock Fine.

It found that Stamp Duty Land Tax (SDLT) investigations rose 88 per cent to 3,035 in the 2024/25 tax year, up from 1,617 the previous year. 

It means the additional tax recovered is up 135 per cent to £200million, up from £85million last year.

Investigations are likely to rise following Angela Rayner’s underpayment of tax, according to Graham Caddock, director at Lubbock Fine, with particular ‘scrutiny on second property acquisitions.’

The additional SDLT rate for second properties was increased from 3 per cent to 5 per cent in October 2024. 

It means anyone buying a second property is liable to pay much more. For example on a £300,000 second property the SDLT demand is now £20,000 up from £11,500 prior to 30 October 2024. On a £800,000 second property the demand is now £70,000, up from £51,500 previously.

The stamp duty rates charged to people moving home is much lower even if they do own second properties elsewhere in the country as long as they are selling their main home and moving into the one they are buying.

For example, someone moving home and buying a £500,000 property will be liable to pay £15,000 as opposed to £40,000 if deemed as purely a second purchase.

This has created a greater financial incentive for buyers of a second property to mislead HMRC and to claim that they do not own another home, according to Lubbock Fine.

HMRC is believed to be mindful of people making inaccurate claims leading to more investigations.

The tax firm says the increased complexity of SDLT rules are also leading to more people making mistakes when declaring their taxes and increased risk of being investigated by HMRC as a result.

Reasons people might get caught out

Some HMRC investigations have involved buyers falsely claiming they are replacing their main home to avoid the SDLT surcharge when buying additional properties. 

Some transfer their home into a trust or to their partner before buying another property, which HMRC does not treat as valid grounds for avoiding the surcharge. 

Graham Caddock at Lubbock Fine says: ‘HMRC looks at many different factors to decide what counts as your main residence. 

‘Whether a property has been transferred into a trust or a partner doesn’t necessarily carry much weight with HMRC.’

Many SDLT investigations involve buyers wrongly assuming a property with some commercial use, such as self-contained rental flats, qualifies for a lower SDLT charge. However, that is only true in very limited circumstances. 

To qualify, the commercial parts must be clearly separate, unsuitable for normal living, and the commercial activity ongoing when the property is bought. 

‘Many people wrongly assume that if a house has some commercial use, they can claim a lower SDLT,’ says Caddock.

‘But if the property is still clearly suitable to live in, or if the commercial part isn’t properly separated, HMRC is likely to challenge that status.

He adds: ‘Similarly, if the commercial element of the property has only been added recently, HMRC is likely to claim it isn’t genuine and has been set up purely to obtain a tax advantage. That can end up costing people large penalties.’

The taxman has also been cracking down on what it describes as ‘bogus’ claims for SDLT refunds, where the buyer claims a property is not a residential home because it needs repairs and is not inhabitable.

What do investigators look for?

Stamp duty tax returns are usually dealt with by a buyer’s solicitor or conveyancer on their behalf. Funds are requested prior to completion.

HMRC checks some returns after they’re submitted to test for accuracy. It will write or phone people to tell them if they want to check their SDLT return. 

Caddock says: ‘HMRC are looking for suspicious transactions, particularly where the original owner of a property still retains an interest in the property, although their interest may be ‘hidden’ via a trust or still hold the beneficial interest in some way.’

Where do they get all their information?

HMRC can receive their information from a variety of sources including Land Registry records and the reporting of suspicious transactions by advisors such as accountants, lawyers or financial advisors.

It also has a sophisticated AI system ‘HMRC Connect,’ which essentially gives it access to vast amounts of personal and financial data.

HMRC introduced its Connect system in 2010 to identify potential cases of tax evasion and avoidance and is used by HMRC to select individuals or businesses for further investigation.

The aim is to speed up the process of detecting fraud and evasion by cross-referencing businesses and people’s tax records with other databases.

It looks at everything from property ownership data from the Land Registry to overseas bank accounts and investment accounts.

HMRC also receives anonymous ‘tip-offs’ and recently announced it was boosting its reward (payment) scheme to reward individuals for reporting cases of suspected tax avoidance. 

These rewards can be up to 30 per cent of the tax collected upon following a HMRC tax investigation.

‘Since 2010 HMRC created their powerful AI-driven, ‘big data’ analytics tool that scans, cross-references, and analyses vast amounts of data from taxpayers, financial institutions, online platforms, and social media to detect, in real-time, discrepancies, fraud, or undeclared income,’ says Mark Barrett, tax specialist at Property Tax Advice ltd.

‘Since its introduction, it is being constantly upgraded, and this system acts almost as a digital detective, generating billions in extra tax revenue by comparing lifestyle and financial data against submitted tax returns.’

What raises suspicion?

Suspicion can often arise when people use so-called SDLT planning schemes that are marketed by certain advisors. 

Suspicion can also arise if someone is involved in numerous property transactions. 

HMRC also collects information from their Connect database about the tenants of a property before and after a transaction. 

Caddock adds: ‘If a property is still being used by or lived in by connected persons – particularly relatives such as children – after a transaction, HMRC may instigate an enquiry to find out the true position.’

What are the penalties?

There are different penalty rules depending on when the SDLT return was due to be filed.

The amount will likely depend on whether the inaccuracy is because of careless or deliberate behaviour. 

When deciding the amount of the penalty, they’ll also consider how someone responded to any request for information and how helpful they were through the checks. 

Of course, the severity of the offence will also dictate how harsh they are.

Tax firm, Lubbock Fine warns that penalties can reach tens of thousands of pounds.

‘Tax penalties of up to 100 per cent of the tax avoided can be levied,’ says Caddock. ‘For more serious cases of suspected tax evasion, HMRC could open a criminal investigation that could lead to a prison sentence.’

Could transferring a home to a partner or child land you with a stamp duty bill?

It is possible to transfer a property to a partner or child without incurring stamp duty as long as there isn’t a mortgage on the property. However, the transfer will be liable for capital gains tax.

‘If you are giving an asset to your spouse, that’s fine,’ says Mark Barrett, ‘but if there is a mortgage on the property, then in effect your spouse is assuming the risk for that mortgage – moving the risk from one spouse to another is a benefit, and if the mortgage outstanding is £40,000 or more, then stamp duty is payable on that mortgage debt.

He adds: ‘A gift of an asset between spouses does not trigger capital gains tax (CGT), but it does if you’re making a gift of an investment property to anyone other than your spouse. 

‘This is because a gift of property is deemed to be at market value – but if there is no consideration, or mortgage debt, then there is no stamp duty.’

And what can people do to avoid getting hit with a tax bill?

Proper planning carried out by a suitable experienced tax advisor is the best way to avoid costly mistakes.

‘The underlying message is don’t play games with the taxman,’ says Mark Barrett, ‘we have seen too often people trying to be smart and listening to their friends down the pub, and they come up with the weird and wonderful.’

Caddock adds: ‘The ‘right way’ depends upon a full review of the facts and an analysis of the ownership history of the property. 

‘The use of trusts for tax planning purposes is a complex area and just because a trust is used does not automatically mean that SDLT is not payable.’