HMRC Enquiry Process for Stamp Duty

What Triggers an HMRC Enquiry?

HMRC may open an enquiry into your stamp duty return for various reasons. Common triggers include:

• Random selection: HMRC conducts routine compliance checks on a sample of returns regardless of risk factors
• Inconsistencies: Discrepancies between your return and Land Registry data, mortgage information, or previous returns
• High-value transactions: Properties above certain thresholds receive increased scrutiny
• Multiple dwellings relief claims: Claims that appear unusual or potentially incorrect
• First-time buyer relief: Relief claimed in circumstances that may not qualify
• Connected party transactions: Sales between family members or related entities at below-market values
• Corporate purchasers: Particularly those claiming exemptions or reliefs from the 17% corporate rate

The Enquiry Timeline

Understanding the enquiry timeline helps you prepare appropriate responses and maintain compliance throughout the process.

Opening Notice

HMRC must notify you of an enquiry within 9 months of filing your SDLT return. This is an absolute deadline — after this period, HMRC cannot open an enquiry unless they discover a loss of tax brought about carelessly or deliberately.

Information Requests

Once an enquiry is opened, HMRC will typically request documentation to support your return. Common requests include:

• Purchase contract and completion statements
• Evidence of property occupation or rental status
• Bank statements showing purchase funds
• Mortgage documentation and valuations
• Evidence supporting relief claims (e.g., first-time buyer status, multiple dwellings)
• Correspondence with solicitors or conveyancers

You generally have 30 days to respond to information requests, though extensions can be negotiated for complex cases.

Compliance Meetings

In some cases, HMRC may request a meeting to discuss your return. These meetings are optional unless HMRC issues a formal notice under Schedule 36 of the Finance Act 2008. You have the right to bring professional representation to any meeting.

Closure Notice

An enquiry concludes when HMRC issues a closure notice. This will either confirm no changes are required or detail amendments to your return along with any additional tax, interest, and penalties due.

Your Rights During an Enquiry

You have important rights throughout the enquiry process that protect you from unreasonable requests and ensure fair treatment.

Right to Representation

You can appoint a tax advisor, accountant, or solicitor to handle all communications with HMRC on your behalf. Professional representation is particularly valuable for complex enquiries or where significant sums are at stake.

Right to Reasonable Requests

HMRC must limit their information requests to what is reasonably required to check your tax position. If you believe a request is unreasonable, you can:

• Request clarification on why the information is needed
• Negotiate the scope or timing of the request
• Appeal to the First-tier Tribunal if agreement cannot be reached

Right to Closure

If you believe an enquiry is taking unreasonably long, you can apply to the First-tier Tribunal for a direction requiring HMRC to issue a closure notice within a specified period.

Right to Appeal

You have the right to appeal against HMRC's conclusions if you disagree with amendments made to your return. Appeals must generally be made within 30 days of receiving the closure notice.

Record Keeping Requirements

You are legally required to keep records supporting your stamp duty return for 6 years from the filing date. This applies even if HMRC does not open an enquiry.

Essential Records

• Purchase documentation: Contract, completion statement, transfer deed
• Financial records: Bank statements, mortgage offers, proof of funds
• Property information: Estate agent details, valuations, planning permissions
• Correspondence: All emails and letters relating to the purchase
• Relief evidence: Documents supporting any reliefs or exemptions claimed
• Previous ownership: Evidence of your residential status and property ownership history

Digital vs. Paper Records

HMRC accepts both digital and paper records. Digital records must be stored securely with appropriate backups. If converting paper to digital, ensure scans are clear and complete.

Penalties for Inaccuracy

If HMRC identifies inaccuracies in your return that result in an understatement of tax, penalties may apply based on the nature and severity of the error.

Penalty Ranges

Penalty Mitigation

The actual penalty charged depends on the quality of your disclosure and cooperation with HMRC. Penalties can be significantly reduced through:

• Unprompted disclosure: Voluntarily reporting errors before HMRC contacts you
• Full cooperation: Providing complete and timely responses to information requests
• Quality of disclosure: Proactively identifying and quantifying all inaccuracies

For careless inaccuracies, an unprompted disclosure with full cooperation can reduce penalties to 0%. Even for deliberate errors, cooperative disclosure can achieve minimum penalty rates.

Interest Charges

In addition to penalties, HMRC charges interest on underpaid tax from the original due date until payment is made. Interest is charged at the official rate set by HMRC, which is currently reviewed quarterly.

How to Respond to an Enquiry

Your response to an HMRC enquiry can significantly impact the outcome. Follow these best practices:

Immediate Actions

1. Don't panic: An enquiry does not necessarily mean HMRC suspects wrongdoing — many are routine checks
2. Read carefully: Review the enquiry notice thoroughly to understand what HMRC is questioning
3. Gather records: Locate all documentation relating to your purchase and stamp duty return
4. Consider representation: Engage a tax advisor experienced in HMRC enquiries, particularly if the issues are complex or significant amounts are involved
5. Respond promptly: Meet all deadlines or request extensions in advance if more time is genuinely needed

Communication Strategy

• Be professional and courteous: Maintain a cooperative tone in all communications
• Stick to facts: Provide clear, factual answers supported by documentary evidence
• Don't volunteer information: Answer the questions asked without providing unnecessary additional detail
• Document everything: Keep copies of all correspondence and notes of telephone conversations
• Seek clarification: If you don't understand a request, ask HMRC to explain before responding

If You Identify Errors

If the enquiry reveals genuine errors in your original return:

• Disclose them fully and promptly to HMRC
• Explain how the errors occurred
• Calculate the correct tax position
• Demonstrate steps taken to prevent future errors
• Consider making a voluntary disclosure of other potential issues

Early, full disclosure typically results in lower penalties and demonstrates good faith to HMRC.

Professional Representation

While you can handle an HMRC enquiry yourself, professional representation offers significant advantages:

• Technical expertise: Understanding complex stamp duty rules and HMRC procedures
• Negotiation skills: Experience in discussing issues with HMRC and reaching pragmatic settlements
• Strategic advice: Guidance on when to hold firm and when to compromise
• Stress reduction: Allowing you to focus on other matters while your advisor handles the enquiry
• Better outcomes: Professional representation often results in lower penalties and more favourable settlements