We now have enough information to be able to answer the question of whether Angela Rayner will be subject to HMRC penalties, and how large those penalties will be. For the reasons below, in my view Ms Rayner will very likely receive penalties for a “careless” error of around 20%.
The background
On the basis of Angela Rayner’s statement on Wednesday, the report from Sir Laurie Magnus, and other publicly available sources, the background facts are as follows:
- A court created a trust in 2020 to help support the needs of her disabled child. The child was the sole beneficiary of the trust.
- At that time, Ms Rayner and her husband lived in a house in Ashton-under-Lyne, in Greater Manchester.
- Ms Rayner and her husband divorced in 2023. Probably as part of the divorce settlement, some of their interest in the house was then transferred to the trust, “to ensure [her disabled son] continued to have stability in the family home”. The trust may have paid cash to Ms Rayner and her husband in return for the interest in the house, but that’s not clear.
- The couple agreed a “nesting” arrangement in which they took turns living in the house, looking after their children.
- In 2025, Ms Rayner sold the rest of her interest in the Ashton-under-Lyne house to the trust for £162,500 cash. That may or may not have been part of the divorce settlement, but probably had to be approved by a court given the trust’s involvement in the transaction.
- Shortly after, Ms Rayner acquired a flat in Hove for £800,000.
- Ms Rayner obtained two sets of advice, from her conveyancer and a trusts lawyer, that the standard rate of stamp duty1 applied to her Hove purchase, and not the higher rate for second homes. However both sets of advice stated that it was not expert tax advice. One made a suggestion that she should obtain specialist advice; the other made a recommendation.
- Ms Rayner however did not obtain specialist tax advice, and therefore paid stamp duty at the standard rate.
- Following recent press coverage, Ms Rayner instructed a leading tax counsel and received advice that “the application of complex deeming provisions which relate to my son’s trust gives rise to additional stamp duty liabilities”.
- This means that Ms Rayner should have paid the higher rate of stamp duty, an additional £40,000.
The law
The relevant stamp duty land tax legislation is as follows:
- Stamp duty land tax legislation is mostly contained in Finance Act 2003. The “higher rates for additional dwellings” (HRAD) rules are in Schedule 4ZA Finance Act 2003, which was created by Finance Act 2016.
- The higher rate was introduced at 3% but (from October 2024) is an additional 5% on each band of stamp duty (including the 0% band).
- The main rule, in paragraph 3 of Schedule 4ZA is that the higher rate applies if, at the end of the day you complete your purchase, you have a “major interest” in another dwelling worth £40k+, and you are not replacing your only or main residence.
- The definition of a “major interest” is in section 117 Finance Act 2003, and broadly covers any ownership interest in land, but not where someone is merely a trustee.
- There are rules for other cases in paragraphs 4 to 7 of Schedule 4ZA.
- If one person holds as trustee then, where it’s a bare trust or life settlement, it’s the beneficiary who is treated as owning it.
- But that creates an obvious avoidance opportunity. I could say I hold my family house on trust for my children, buy another property, and escape the higher rate charge.
- There is a specific rule in paragraph 12 to counter this. If minor children (i.e. under 18) are beneficiaries of a trust over property then the parents are treated as owning the property.
- That could create an unjust result if the trust was created as a result of a court order to protect a child with diminished capacity. So a specific exclusion (now in paragraph 12(1A)) was created in 2018 to prevent the higher rate stamp duty applying in this situation.
- The exclusion applies where a trustee is acting under powers conferred by a court appointment under the Mental Capacity Act 2005.
- The MCA 2005 allows a court to make an order appointing a “deputy” to make decisions on behalf of someone with diminished capacity. Often a deputy will hold property on that person’s behalf, as trustee.2
This is all accurately and succinctly summarised in HMRC guidance.
How did the law apply?
When Ms Rayner acquired the Hove flat, it was the only property she owned. She was registered at the land registry as one of the owners of the Ashton-under-Lyne house, but she was just a trustee, with no economic/beneficial interest. So on the face of it the higher rate did not apply.
So the usual position would be that Ms Rayner’s purchase of the Hove flat would be taxed at the normal SDLT rate, meaning £27,500.3.
However, Ms Rayner’s son was the beneficiary of a trust over the Ashton-under-Lyne house. That means that paragraph 12 deemed Ms Rayner to own the house.
Why didn’t the exclusion in paragraph 12(1A) apply? At this point we don’t know. Possibly something to do with the terms of the court order/trust that we’re not aware of. Possibly because the trust was in favour of her other children as well.4 Sir Laurie Magnus’s report says:
“I understand there are additional complexities, for example concerning the particular type of trust in question and the reason for which the trust was established. Taken together, it appears that – particularly in the context of the specialist type of trust in question – the interpretation of these rules is complex.“
So we should probably assume this wasn’t a simple ignorance of the existence of paragraph 12, but something more subtle.
Whatever the reason, the higher rate therefore applied, meaning £67,500.5 So an additional £40,000 was due.
Will Ms Rayner face HMRC penalties?
I expect that she will.
The general rules for penalties are in Schedule 24 Finance Act 2007, and apply to most taxes, including stamp duty land tax.6
There is plenty of caselaw on HMRC penalties, but I’m not aware of any where a taxpayer was advised to obtain specific tax advice, but didn’t. The following is my view based on applying the legislation, the principles in decided caselaw, and my experience of HMRC’s approach in practice.
There is no penalty for an innocent mistake, which was neither careless nor intentional (although the tax and interest remain due).
Penalties will, however, apply under paragraph 1 of Schedule 24 if a stamp duty return contains an understatement of tax which was “careless”. Paragraph 3 says that an inaccuracy is “careless” if it is due to failure by a taxpayer to take reasonable care.
The standard of “reasonable care” is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt. That means one takes account of the taxpayer’s particular abilities and circumstances.
When you instruct an adviser, and provide them with complete facts, you are entitled to rely on their advice, even if it turns out your adviser was careless (unless the advice was manifestly unreasonable or you failed to provide the adviser with complete facts). So if (for example) Ms Rayner did not read HMRC guidance herself, that does not make her “careless”.
I think it is reasonable for a layperson to trust a conveyancer’s advice on stamp duty (not least for the very practical reason that any other conclusion would cause grave difficulties in the property market), and a trust lawyer’s advice on tax involving trusts.7 However your ability to rely on your conveyancer ends if the conveyancer advises you to speak to a specialist. That is what happened here.
My view is that a prudent and reasonable person in the position of Deputy Prime Minister would seek tax advice on a property transaction, particularly if they held legal title to another property, under a complex trust arrangement. My view is that, if the adviser told them they didn’t have expertise in the point, and suggested they receive specialist advice, a prudent and reasonable person would have obtained that advice.
As the First Tier Tribunal said in the Lithgow case:8
“[R]eliance upon properly provided professional advice, absent reason to believe that it is wrong, unreliable or hedged about with substantial caveats, will usually lead to the conclusion that a taxpayer has not been negligent if he has taken and acted upon that advice.“
Here there was a “substantial caveat”, and Ms Rayner did not act upon the advice to obtain specific tax input.
It follows that in my view Ms Rayner was almost certainly “careless”.9
What is the level of penalties?
The maximum penalty for “carelessness” is 30% of the lost tax.
Carelessness penalties are reduced, potentially to zero, if a taxpayer approaches HMRC with the error – in tax parlance, they made an “unprompted” disclosure. But in Ms Rayner’s case, her correction is realistically “prompted” – she only obtained proper tax advice after a week of press scrutiny, and HMRC were already aware of the issue.10 That means that, under current HMRC practice, the level of penalties will usually be 15% to 30%.
I expect that, with reasonable cooperation from her advisers, the final level of penalties would be around 20% – so about £8,000.11
Disclosure
I’m a member of the Labour Party; I was a member of its senior disciplinary body (the National Constitutional Committee) but have stood down. I have no formal role in the Labour Party, and I advise policymakers in all parties. Generally that’s on “background”/unofficial: my one official role is that I’m a member of the SNP Scottish Government’s tax advisory group. I also participate in Government consultations, and speak to officials and occasionally politicians as part of those consultations (and have done so for many years, under previous Governments).
Thanks to T for their help with the stamp duty analysis, O for MCA 2005 background, and J for an SDLT correction after publication. And thanks to S for adding additional colour on the penalties caselaw.
Photo ©House of Commons, CC BY 3.0 licence.
Footnotes
Apologies to all tax advisers reading this, but I’m going to refer to stamp duty land tax as “stamp duty” throughout this article. ↩︎
Usually it’s adults rather than children who are the subject of such orders, as children’s affairs are already managed by their parents, but it’s not uncommon for orders to be made for children when they turn 16, so everything is in place in good time for when they turn 18. ↩︎
The applicable rates at the time meant the calculation was: 0% on the first £250k, and 5% on the rest. Assuming this was not a new lease, the ground rent does not affect the calculation. ↩︎
Paragraph 12 is applied separately to each child. So a child beneficiary who is within the paragraph 12(1A) exclusion doesn’t cause their parents to be deemed the owner of the property. But other child beneficiaries of the same property, who aren’t in the exclusion, will cause their parents to be deemed the owner. This is a potential “gotcha” for parents who try to protect all of their children, instead of just focussing the trust on the one child who needs MCA 2005 protections. ↩︎
The applicable rates at the time meant the calculation was: 5% on the first £250k, and 10% on the rest. ↩︎
There is an excellent summary of almost all procedural tax legislation and caselaw at procedure.tax – an amazing free resource created by Michael Firth KC. ↩︎
It’s is my view that neither is qualified to advise on non-straightforward SDLT questions, particularly those involving trusts, and I think most tax professionals would agree – but I don’t think it’s fair to assume that a prudent and reasonable layperson would share my view our on this. ↩︎
Lithgow v HMRC TC2011/09646. See also Anderson [2016] UKFTT 335: “Nor would we expect such a taxpayer
to obtain another professional opinion again unless there is reason to do so, of which the taxpayer ought to reasonably be aware, such as that any qualification put upon the advice by the firm may limit its reliability”. ↩︎I say “almost” certainly because Ms Rayner has at least two counter-arguments. The first is to say that I’m wrong, and it was reasonable to rely on the two advisers, despite their caveats. Perhaps she could say she was used to lawyers adding caveats and thought it was just pointless boilerplate. I don’t agree with that. Alternatively, in principle Ms Rayner could avoid penalties if she could show that, even if she had obtained expert tax advice, they would still have got the answer wrong. We don’t know what the underlying complexity is, but this feels like a very challenging argument to run in circumstances where no tax advice was obtained at all (as opposed to cases where advice was obtained, but the taxpayer provided incomplete information). And Sir Laurie’s letter says that “if such expert tax advice had been received, as it later was, it would likely have advised her that a higher rate of SDLT was payable”. I’m also conscious that we haven’t seen the advice in question, and we are reliant upon Sir Laurie’s summary of what it said – he’s a very eminent and intelligent man, but not a lawyer. ↩︎
Paragraph 9(1E)(2) says a disclosure is unprompted “if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy”. Once the press coverage began, it was likely inevitable that HMRC would discover the inaccuracy in Ms Rayner’s SDLT return. Ms Rayner had a “reason to believe” HMRC were “about to discover” the inaccuracy. So this is an unusual type of “prompted”, but it is in my view still “prompted”. ↩︎
If Ms Rayner’s advisers told HMRC immediately when the error was discovered then penalties could be reduced right down to 15% (for “telling“). Careless penalties can be suspended in some circumstances, but usually for taxes which are paid on an ongoing basis (e.g. VAT) and not typically for stamp duty land tax. ↩︎
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