The Basics

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5.15 a) states that firms must have ‘A procedure for giving clients clear and timely advice and information on SDLT including the meaning for SDLT purposes of ‘Firs buyer’ and ‘Major interest in a dwelling’.

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This is fascinating partly because on its face it would seem to contradict the preferred position of firms and regulators, explicitly requiring that they give ‘advice’ in relation to SDLT. Firms would certainly prefer to exclude such advice from their engagement, seeing as SDLT is a tax matter rather than a pure conveyancing one.

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However, it would seem that the provision of such advice is now a requirement, though not necessarily from the firm itself. Note that the wording follows on from an introductory line on the section requiring the firm to have an overall ‘policy’. That policy could include the referral of a client to a third party for this advice.  

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The other point of note here is that the regulation specifically outlines how a client is to be educated as to the meanings of phrases like ‘First Time Buyer’ in relation to SDLT. As we know, this definition is very specific and requires that no party to the transaction has ever owned a property (or a substantial interest in a property) anywhere in the world.

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Its inclusion here would suggest that perhaps this is one of the factors in the current legislation which has been catching firms out.  

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In either case, this is exactly the sort of procedure for which Compass exists.  The new outbound client portal permits the delivery of the information, obtaining client answers, and then the production of advice.

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In “marginal” cases it will be a complete breakdown of the matter and a recommendation for referral to one of our trusted adviser panels who are all capable of providing the sort of in-depth tax advice that your clients would require to fulfill these obligations, and of obtaining the requisite signed confirmations which would firmly ensure responsibility for any mistakes or misunderstandings by the client would rest with them and not your firm.

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The Big Surprise

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5.15 b) states firms must also have ‘A procedure for ensuring that the practice provides a clear written SDLT calculation to the client at the outset.’

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This is particularly interesting given certain events which have shaped the current stamp duty landscape. Back in 2019, Advanced Mortgage Funding was found by the Financial Ombudsman Service to be liable for incorrect ‘advice’ given to a client by a broker who had received it informally from a local firm. Clearly, this is not an ideal state of affairs, and a client should be receiving this sort of information from their own legal adviser at the outset.  

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Of course, a multitude of factors can impact such an assessment, many of which you may not be aware of at the outset of a transaction.

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There is no foolproof way to ensure that an assessment taken at the outset of a transaction encompasses all of these factors.  

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Happily, as it’s a ‘procedure’ you can simply incorporate your Compass license into this requirement. A quick initial draft calculation can give you the “estimated” figure you need to comply and, before the exchange, when full information is available, a full calculation can be produced to ensure that 5.15(c) is met (see below)

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The Bread and Butter

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5.15 c) states that ‘A procedure for verifying the amount of SDLT payable, where applicable, before exchange.’ will be required.

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This couldn’t be more straightforward – this is exactly what Compass provides for you with every client – a digital, fully updated system for calculating the precise SDLT liability on any type of transaction, and a full audit trail of said liability. If the case is complex this is the point where our specialist panel firms will be happy to provide in-depth tax advice that you would require to fulfill these obligations, and of obtaining the requisite signed confirmations which would firmly ensure responsibility for any mistakes or misunderstandings would rest with them and not your firm.

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This said, it is again interesting to note the addition of the words ‘before exchange’ here, which indicates again that the Law Society is aware of an issue we have suspected for some time, with regard to certain of the current SDLT regulations.

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Anecdotally we are aware of many cases involving the so-called 3% Surcharge (indeed Advanced Mortgage Funding falls into this category) in which firms had incorrectly assessed the liability or otherwise of the client to the surcharge and the mistake was not realised until after exchange. Perhaps though, this sort of error was more commonplace than we had suspected.

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The Boilerplate

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5.15 d) requires ‘A procedure setting out how and when the practice makes checks between the consideration stated in the:  

1. Sale Contract
2. Transfer Deed
3. SDL Return and
4. the payments on the solicitors’ client account ledger for the transaction.’

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Frankly, if your firm doesn’t already have most of this covered in a standard reconciliation statement for each case, then you arguably have bigger issues! This is the least amended part of the regulations in this new version, really only adding that the firm should have a procedure rather than just the looser inclusion of a ‘how to’ as part of the policy.  

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All things considered, it’s clear that the latest version of the CQS regulations makes a stronger case than ever in favour of your firm using Compass.

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The ability to not only fulfill all these obligations but also to do so in such a way that ultimate responsibility for accuracy-time is delegated to a third party rather than your firm is one that is invaluable in the current landscape.

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