Family face £100k stamp duty bill after avoidance scheme crashes in court – the mistakes to avoid

A couple faces paying £100,000 in stamp duty after their appeal against the bill was thrown out. The Mudans had tried to reduce liabilities using a tax avoidance scheme, but will now need to pay the six figure sum.

Accountants have said the recent decision has highlighted the risks of engaging in stamp duty land tax (SDLT) avoidance schemes.

For years, certain arrangements have been marketed to significantly reduce – or even remove altogether – SDLT liabilities on property purchases, a key cost of moving home.

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HMRC has consistently rejected such schemes, and the Court of Appeal judgement in the Mudan’s case supports HMRC’s position.

What was the stamp duty avoidance scheme?

Mr and Mrs Mudan purchased a severely deteriorated property in London intending to renovate it into a family home. They used a residential mortgage to buy the property, which was being lived in at the time.

The couple undertook works after purchase including rewiring, installing a new boiler, replacing windows, tanking the basement, and renovating other house features.

The Mudans paid stamp duty at residential rates, but later amended their stamp duty return to claim a refund on the basis that the property was not fit for human habitation and was non-residential at the time of purchase.

Where a property is not suitable for use as a dwelling, it is not considered a residential property, and a lower rate of stamp duty applies. This is a maximum of 5% for a property over £250,000 in the 2024/25 tax year.

This saving is even greater for purchasers of second properties as a 5% uplift in stamp duty on buy-to-lets, which would normally be due, would not apply.

In the Mudan case, the couple used a scheme that attempted to avoid SDLT through an artificial sub-sale arrangement.

They signed up to a series of steps designed to give the impression, on paper, that the couple were acquiring something other than a completed residential property, in order to exploit a tax relief – the ‘not suitable for use as a dwelling’ rule – never intended for such transactions.

The Court of Appeal found that the legal and commercial reality was simply that the buyer had purchased a residential property, and stamp duty applied in full. HMRC successfully argued that the contrived steps had no genuine commercial purpose and that the relevant relief could not be claimed.

Bento said: “In many instances, individuals claim they have been misled by advisers who present these schemes as ‘tried and tested’ or ‘HMRC-approved’ – claims that simply aren’t true.

“While most professional advisers act responsibly, we have seen examples where advice was given without full disclosure of the risks, or by individuals without the necessary depth of tax expertise.”

What mistakes are people making with stamp duty avoidance schemes?

Bento said her firm has been approached by both individuals and businesses who became involved in stamp duty avoidance schemes, either at the point of acquiring a property or years after, after being contacted by scheme promoters.

These promoters often suggest that homeowners can retrospectively claim overpayment relief for SDLT by claiming that the property was uninhabitable at the time of purchase, she said.

“One key mistake is assuming that because a scheme has been used before – or because it was promoted by a seemingly reputable source – it must be safe,” Bento said.

Another is relying on opinions that are not truly independent but instead produced by those with a vested interest in selling the arrangement.

“Regarding the scheme itself, one of the key misunderstandings is the belief that one can re-characterise a straightforward property purchase into something outside the scope of SDLT,” Bento added.

The Mudan case reflects a pattern Bento’s firm sees regularly:

• Over-reliance on form over substance. Courts and HMRC look at what actually happened, not just the paperwork.
• Misinterpretation of legislation. Reliefs are narrowly defined; stretching them beyond their intended scope almost always fails.
• Ignoring precedent. Similar schemes have been defeated before, but promoters sometimes gloss over those losses.

“The Mudan decision reinforces that if a scheme depends on artificial steps with no genuine commercial reason, it is unlikely to survive HMRC challenge,” Bento said.

What to do if you have used a stamp duty avoidance scheme

HMRC’s stance on stamp duty avoidance has been consistent in principle but increasingly robust in practice. HMRC now believes that 95% of stamp duty reclaims are incorrect, which will lead to faster intervention, wider use of information-gathering powers, and more willingness to litigate, according to Bento.

The internet and now AI has made it easier than ever to find information about tax, but also misinformation – an apparently “clever” arrangement found online can lead to costly disputes with HMRC.

“If HMRC determines that that tax has been underpaid, penalties may be charged. HMRC will not accept explanations such as ‘I read it online’ or ‘an AI tool told me’ as valid grounds for waiving penalties or overturning assessments,” said Bento.

Depending on the specific circumstances, and whether HMRC has already opened an enquiry, there may be scope to reduce any penalties imposed for incorrect claims or inaccurate SDLT returns.

“Attempting to manage your own tax affairs or undertake tax planning without professional advice carries significant risks,” Bento said. “If you have concerns about the accuracy of previous tax filings or advice received, we strongly recommend seeking professional advice at an early stage – proactive engagement can make a significant difference.

“The Mudan case should serve as a reminder that if something sounds too good to be true, it usually is. The safest approach is always to ensure that your tax affairs are compliant, transparent, and based on sound professional advice.”