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Navigating the HMRC Process for Reclaimed Stamp Duty: What to Do If You’re Asked to Pay It Back


Stamp duty is a tax levied on various legal transactions, including property purchases. While there are situations where you may be eligible to reclaim overpaid stamp duty, what happens if His Majesty’s Revenue and Customs (HMRC) decides that the refund was unwarranted and requests the money back? This article delves into the HMRC process for such cases, including the interest charges you may incur and a practical example to illustrate the financial implications.

The Initial Steps: Assessment and Notification

If HMRC concludes that your stamp duty reclaim was unjustified, they will typically initiate an assessment process. This involves scrutinizing the transaction details, the documentation you provided, and the rationale behind your reclaim. Following this, you can expect to receive a formal notice or letter from HMRC, stating their intent to recover the refunded amount.

Why Would HMRC Want the Money Back?

Several reasons could prompt HMRC to reclaim the refunded stamp duty, such as:

  1. Inaccurate information submitted during the reclaim process.
  2. Legislative changes that retroactively affect your eligibility.
  3. Administrative errors on HMRC’s part.
  4. Discovery of fraudulent or dishonest activity in your application.

Your Available Courses of Action

Upon receiving the notice, you generally have several options:

  1. Immediate Repayment: If you concur with HMRC’s findings, you can opt to repay the amount immediately.
  2. Challenge the Decision: If you disagree, you have the right to contest HMRC’s claim. This often involves submitting additional evidence and may require legal counsel.
  3. Negotiation: In some instances, you may be able to negotiate the repayment amount or arrange a payment plan.

Interest Charges by HMRC

It’s important to note that HMRC charges a small amount of interest on any money that needs to be repaid. As of 22 August 2023, the repayment interest rate is set at 4.25%.

Example Calculation

Let’s say you reclaimed £7,500 and HMRC asks for it back after an eight-month period. The interest would be calculated as follows:

  • Interest rate: 4.25% per annum
  • Interest for eight months at 4.25%=£212.50

So, the total amount to be repaid would be £7,500 + £212.50 = £7,712.50.

See HMRC website: HMRC interest charges

Legal Implications

Failure to comply with HMRC’s request for repayment can result in legal repercussions, including penalties and additional interest on the outstanding amount. In severe cases, legal action may be initiated to recover the funds.

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