Are you paying too much Stamp Duty?

Stamp Duty Land Tax – the money we must pay to the taxman when we buy a home should be simple enough to calculate. The amount is based on the price we pay for the property, and the government has even prepared a handy online calculator here.

But the rules are complex, and many property buyers pay too much tax or think they cannot afford a property because they believe they have to pay more than they actually do.  New rules were introduced in the Spring Budget 2017 – but people are still being tripped up by them.

The basics

The Stamp Duty rates that apply when you buy residential freehold property if you have owned a home previously are:

• Properties up to £125,000 – £0
• The next £125,000 (from £125,001 to £250,000) – 2%
• The next £675,000 (from £250,001 to £925,000) – 5%
• The next £575,000 (from £925,001 to £1.5 million) – 10%
• The remaining amount (above £1.5 million) – 12%

If you’re a first-time buyer, you’ll pay a discounted rate of Stamp Duty. Properties up to £300,000 charge 0%, while the portion from £300,001 to £500,000 charge 5%.

Where things get more complicated

Things get more complicated if you own more than one home. Usually, you’ll have to pay 3% on top of the normal Stamp Duty rates if you purchase an additional residential property for more than £40,000. This might be a property you intend to rent out, a property you’ve purchased with one of your children, or a holiday home. The government’s intention was mainly to crack down on Buy to Let investors who may be pushing homes out of the reach of first time buyers – but there are a number of factors that cause confusion.

If you own a home abroad, or if you buy a new home for yourself before selling your old home it can mean running into some complicated rules and regulations.

Confusion also arises from a transitional provision designed to ease the passage of the bill. This allows anyone who sold a main home before November 2015 to buy another before November 2018 without being liable for the surcharge.

The government may have made confusion worse by changing some rules to deal with unforeseen situations. For example, homes with a Granny Annexe were originally classed as two properties and attracted higher rates. This has been changed to a more reasonable single-property rate – provided that the value of the Granny Flat is no more than a third of the overall price.

Applying for a refund

HM Revenue & Customs has refunded £127m of stamp duty to second homeowners since the surcharge was introduced. HMRC had to give refunds on 10,700 transactions at an average cost of £11,869 each.

If you believe you are owed a refund because you purchased a new home before selling your old one, or because you have overpaid for any other reason you may be able to claim. HMRC advise that you should write to Stamp Duty Land Tax Office, quoting the Unique Transaction Reference Number (UTRN) that was given when your bought it and including a copy of the original SDLT return with your claim.  You’ll be asked to explain why you think you’ve overpaid.

The deadline for claiming back tax you’ve overpaid is 4 years from the effective date of the transaction. This is usually the completion date for the purchase of the property or properties.

As always with tax the position is complicated. Getting some expert advice from the Continuum team could make things clearer.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Sources:

telegraph.co.uk – Stamp duty refunds for 10,000 people who wrongly overpayed for ‘second homes’ – 28th July 2017

ukbudget.com – Stamp duty increase of 3% on additional properties – Spring 2018