Commentary

By Tom,

Stamp Duty: don’t pay more tax than you have to!

Lots of people pay more Stamp Duty than necessary, thanks to recent rule changes along with the longstanding complexities surrounding property classifications. This has been going on for some time and has been reported on by the press but, annoyingly, it still happens pretty regularly. There are a few reasons for this. The main problem is that it’s usually solicitors who end up in charge of determining how much Stamp Duty Land Tax (SDLT) is due.

This means it’s up to them to correctly classify properties whilst navigating the stupidly complicated rules and, with respect to solicitors, they tend not to be experts on SDLT, or taxation generally. Her Majesty’s Revenue and Customs (HMRC) presumably has a duty to check for overpaid tax, just as they have a duty to check for underpaid tax. However, as many will know, the Revenue is a lot more scrupulous in its efforts to detect underpayments (or perceived underpayments!) than it is in fulfilling its respective duty to acknowledge and rectify over-payments.

If you’re in the process of buying a house or have bought one recently then read on to find out if you’re entitled to stamp duty relief. HM Revenue & Customs (HMRC) has reportedly refunded £127m of stamp duty to second-homeowners since the surcharge was introduced: 6,800 additional property refunds totalling £80m were paid in 2016/17 with a further £47m repaid in Q2 2017. In total, HMRC had to give refunds on 10,700 transactions at an average cost of £11,869 each.

FYI: We recently secured a £10k tax rebate for a friend who’d overpaid on stamp duty so needless to say, it’s always worth a second look…

Common pitfalls

Stamp Duty Land Tax (SDLT) is a tax on properties bought in England and Northern Ireland. You’ll need to pay it when you buy a residential property that costs more than £125,000. Thanks to complex, home buyers often pay more than they have to and HMRC tends not to notify people when this occurs. See below for a brief rundown of some of the common mistakes that are made which often lead to over payments.

Annexes, or ‘granny flats’

Often, those who purchase houses which have an annexe end up paying more stamp duty than is required. The reason for this is that, under the old rules, ‘granny flats’ would have been classed as two ‘dwellings’ and, as such, would be subject to higher rates of SDLT – a 3% surcharge to be precise. However, since the rules were updated in 2018, properties with an annexe can be classed as one dwelling so long as the annexe is not worth more than a third of the value of the entire house and is within the main grounds of the property. This can make quite a difference. For this to be the case, the property must tick the following two boxes:

  1. The less valuable dwelling must be a part of the same building as the more valuable one (or in the grounds of the more valuable one)

  2. The more valuable property must be 2/3 or more of the value (so over £666,667 in the case of a purchase for £1,000,000)

For the surcharge not to be due, the property might be the buyer’s only property, or he might be replacing an only or main residence by moving into the more valuable of the two dwellings being bought. If you’re still unclear, feel free to give us a ring on 0203 326 0133.

Other common pitfalls

  • Those buying more than one property in a transaction should pay the tax based on an individual average, rather than the collective sum. So if you were buying five £200,000 houses in the same transaction, they won’t be taxed as if they were one £1m property.

 

  • Mixed-use dwellings – properties that contain offices or land – are often subject to commercial rather than residential stamp duty rates. One buyer of a farmhouse with 50 acres of land found the difference in stamp duty rates was £186,750.

 

  • A buyer with an existing buy-to-let property who sells their main home to move abroad doesn’t need to pay the tax when buying a new main home when they return to the UK.

  The good news for those who’ve overpaid is that they can claim a refund on these charges within three years! Although, it’s advisable to contact the Revenue within 12 months if possible otherwise they can make things difficult, apparently. We can help with this as our team of consultants has spent untold hours dealing with HMRC…

HMRC’S Overview

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.

The tax is different if the property or land is in:

The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. There are different rules if you’re buying your first home.

You get a discount (relief) that means you pay less or no tax if:

  • you complete your purchase on or after 22 November 2017
  • the purchase price is £500,000 or less
  • you, and anyone else you’re buying with, are first-time buyers

You pay the tax when you:

If all this still looks a bit confusing, please don’t hesitate to get in touch by phone or email so we can help guide you through the process…  

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