Stamp duty land tax (SDLT) is a significant expense in the property buying process, and homeowners often bear its weight. While attempting to avoid SDLT can lead to complications, some buyers may have overpaid or qualify for retrospective exemptions, opening the possibility of a stamp duty refund.
In this guide, we explore the reasons why a stamp duty refund may be granted, the claims procedure, and the expected timeline for receiving refunds from HMRC. But first, let's quickly review the fundamentals of stamp duty to set the stage.
If you believe you may be eligible for a stamp duty refund or wish to learn more about the process, read on and discover how to make the most of your opportunities.
What is stamp duty?
Stamp duty land tax (SDLT) is a tax applicable to property and land purchases in England and Northern Ireland. Similar schemes exist in Scotland (Land and Buildings Transaction Tax - LBTT) and Wales (Land Transaction Tax - LTT).
The amount of SDLT you'll pay depends on various factors, including your buyer status (landlord, first-time buyer, holiday home purchaser) and the property's price.
In property transactions, buyers bear the responsibility of paying SDLT, while sellers are not obligated to do so. However, in many cases, sellers purchase another home, leading to both parties paying SDLT for separate transactions.
It's important to note that stamp duty is a standalone tax and does not include VAT.
Understanding the intricacies of SDLT is vital when engaging in property or land purchases, ensuring compliance with tax obligations and making informed decisions throughout the process.
What is the stamp duty surcharge?
In addition to the standard stamp duty payment, a surcharge applies under the following circumstances:
- Purchasing buy-to-let property as a private landlord or through a limited company.
- Buying a second home valued at £40,000 or more.
The stamp duty surcharge has been in effect since April 1st, 2016, impacting eligible buyers.
It's crucial to be aware of these additional factors when calculating stamp duty obligations, ensuring accurate financial planning and informed decision-making during property transactions.
How long do I have to make a claim for a stamp duty refund?
It is crucial to initiate your refund claim in a timely manner, considering the associated deadlines.
If you sold your property on or after October 29, 2018, the following timelines apply:
- You have 12 months from the date of selling your home to submit your request to the tax authority.
- Alternatively, you have until the stamp duty filing date of your new residence, whichever is later.
For sales made prior to that filing date, the deadlines are as follows:
- Make the claim within a year from the stamp duty filing on the purchase.
- Alternatively, submit the claim within three months of completing the sale of your first property, whichever is later.
Missing these deadlines will render your refund claim invalid. Act promptly to ensure compliance with the timelines and maximise your chances of a successful stamp duty refund.
Who is entitled to a HMRC stamp duty refund?
While stamp duty guidelines provide clarity on who is liable to pay and the calculated amounts, there are instances where a stamp duty refund may be applicable, highlighting the complexity of the process.
Consider the following scenarios where buyers may be eligible to claim a stamp duty refund from HMRC:
- Property value reassessment: If the property value is subsequently reassessed and falls into a lower stamp duty bracket, a refund may be available for the difference.
- Multiple-property purchase: If multiple properties were inadvertently included in the stamp duty calculation, resulting in an overpayment, a refund can be claimed for the excess paid.
- Failed property transactions: In cases where a property purchase falls through and the stamp duty has already been paid, a refund can be sought.
- First-time buyer relief: If a buyer was not initially aware of their eligibility for first-time buyer relief, a refund can be claimed if the necessary criteria are met.
Navigating these scenarios can be complex, but understanding your eligibility for a stamp duty refund is crucial. Consult with HMRC or a tax professional to explore potential refund opportunities and ensure you receive the appropriate reimbursement.
Can I reclaim stamp duty on a second property?
To be eligible for a stamp duty refund on your second home surcharge, you must sell your main residence within three years of paying the additional 3%.
For properties sold on or before October 28, 2018, you should make the claim within one year of the stamp duty filing on the purchase or within three months of the sale's completion date, whichever is later.
If the property was sold on or after October 29, 2018, your refund request must reach HMRC within 12 months of selling the main residence or within a year of the new residence's stamp duty filing date, whichever is later.
The sale of a main residence can occur for various reasons, including:
- Purchasing a "second home" without selling the original main residence due to losing a buyer or not wishing to give up on the purchase.
- Divorce proceedings requiring the purchase of another property before selling the previous main residence.
- Buying as a couple, where one party retains their property temporarily or due to an inability to sell.
- A change of heart, such as buying a holiday home but deciding to sell the previous main residence and live in the holiday home full-time.
Understanding the specific timeframes and scenarios for claiming a stamp duty refund on the second home surcharge is crucial. Ensure timely submission of your request to HMRC to potentially secure a refund in eligible circumstances.
Stamp duty land tax refund for houses with an annexe
Many individuals remain unaware that they may have overpaid stamp duty due to a specific circumstance. If you paid a stamp duty surcharge on a property with an annexe, granny flat, or similar smaller building on the main home's grounds, you might be eligible to claim a refund from HMRC.
This opportunity stems from a rule change implemented in 2018. Properties with a self-contained annexe are now considered a single home, rather than two separate properties, as long as the main building represents at least two-thirds of the property's overall value.
If your property fits this category and your purchase occurred after the rule change, you could potentially receive a significant refund. Reach out to your conveyancer to determine the rate you paid and request a resubmission if any errors were made.
Don't overlook this chance to claim a stamp duty refund. Act now to explore whether you are eligible and seize the opportunity for a substantial reimbursement.
Shared ownership stamp duty refund for first-time buyers
In the 2018 Autumn Budget, the Chancellor announced that first-time buyers purchasing shared ownership properties would be exempt from paying stamp duty if the home's value is below £500,000.
What's even more beneficial is that this relief can be applied retrospectively. If you bought a shared ownership property as a first-time buyer on or after November 22nd, 2017, you may be eligible for a stamp duty refund.
Take advantage of this opportunity for potential savings by exploring your eligibility for a stamp duty refund as a first-time buyer of a shared ownership property. Contact relevant authorities or seek professional advice to initiate your refund claim and secure any reimbursement you may be entitled to.
Stamp duty refund on uninhabitable buildings
The recent high-profile tribunal hearing of Paul and Nikki Bewley has garnered national attention, potentially paving the way for future claims concerning properties deemed uninhabitable.
In January 2017, the Bewleys purchased a derelict bungalow for £200,000 as a buy-to-let investment. The property lacked central heating and contained asbestos. Their plan was to demolish the existing structure and build a new home to let to tenants. Initially believing they were exempt from the buy-to-let surcharge, they paid the standard rate of stamp duty (£1,500), only to later receive a demand from HMRC for £7,500!
According to the Housing Act of 1967, for a property to be deemed habitable, it must have essential facilities like a functional bathroom, toilet, and kitchen. HMRC, however, argued that the Bewleys' investment would be fit for habitation in the future.
The tribunal ruled in favour of the Bewleys, declaring the property unsuitable for immediate habitation and thereby exempting them from the stamp duty surcharge.
This landmark decision has significant implications. Landlords who previously paid the top rate for properties requiring extensive renovation to become livable spaces may now question hundreds of past surcharges. While it's still early, there is speculation that HMRC could face a wave of retrospective claims for stamp duty refunds as a result.
Stay informed and monitor developments in this area, as this ruling may open the door for potential refunds and relief for landlords who have encountered similar situations. Seek professional advice to assess your eligibility and navigate the process effectively.
SDLT refund on miscalculated properties
One potential reason for overpaying stamp duty is an inaccuracy with HMRC's online stamp duty calculator. The calculator, available on the Revenue and Customs website, is designed to assist in determining the amount owed. However, recent revelations indicate that the calculator may not always provide accurate results.
HMRC clarified that the online tool is intended for guidance purposes only. Nevertheless, many solicitors relied on it for final calculations, potentially leading to overpayment. It is estimated that as many as one in six buyers may have overpaid, although the government disputes this figure and maintains that the majority pay the correct amount.
If your property is considered "mixed-use" or includes an annexe, you could be among those affected by this issue. If you suspect you may have been overcharged, it is advisable to reach out to your conveyancer or the Law Society for further guidance. They can assess your situation and determine if you have grounds for a stamp duty refund claim. Stay proactive and ensure your stamp duty payment aligns with the accurate calculation for your specific property.
What is the stamp duty refund procedure?
The stamp duty refund process is relatively simple and can be completed online or through postal submission. While hiring a solicitor is an option, you can handle the claim yourself if you prefer.
It's important to be cautious of companies offering "no win, no fee" solutions for stamp duty refunds. While enticing, these companies often charge high percentage rates if your claim is successful, resulting in significant costs on your part.
Consider the best approach for your situation, whether it involves seeking professional assistance or proceeding independently. By being well-informed and vigilant, you can navigate the stamp duty refund process effectively and avoid unnecessary expenses.
How long does a stamp duty refund take?
Once you submit all the necessary information to HMRC, your stamp duty refund claim should be processed within 15 days. If, for some reason, your claim is not settled within this timeframe, you may be eligible to receive interest on the refund amount. However, it's important to note that filing for compensation is not an option in such cases.
Ensure that you provide HMRC with all the required details promptly, allowing for a smooth and timely processing of your stamp duty refund claim.
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