Stamp Duty Reliefs
Stamp duty land tax (SDLT) is a big part of property buying and one of the biggest expenses for anyone purchasing a new property. Avoiding SDLT can get you into trouble, but some buyers might have overpaid or qualify to receive a stamp duty refund. This means they may be eligible to receive a refund.
Here we’re going to look at some of the main reasons why a stamp duty tax refund might be granted, how to make a claim, and how quickly a refund might be processed by HMRC. Let’s quickly go through some basic stamp duty basics before we get into the nitty-gritty.
Stamp Duty – What is it?
Stamp duty land tax is a tax payable on properties or land purchases in England, Northern Ireland, Scotland, and Wales.
The amount of SDLT you’ll be required to pay will vary for many reasons. Factors such as your buying status, whether you’re a landlord, first-timer, purchasing a holiday home or any other factor will all be taken into account when determining your mortgage quote.
Sellers are the only ones required to pay SDLT in a house sale, as buyers aren’t required to, but, usually, the buyer will be purchasing another house to replace the one he/she has left, so both parties would end up paying, albeit in different transactions.
Since Stamp duty is a standalone tax it doesn’t incur VAT.
Stamp Duty Reliefs
Guide
Here are the topics that we’ll cover in this complete guide:
England – Stamp Duty Land Tax
| Property or lease premium or transfer value | SDLT rate |
|---|---|
| Up to £125,000 | Zero |
| The next £125,000 (the portion from £125,001 to £250,000) | 2% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
Wales – Land Transaction Tax
| Property or lease premium or transfer value | SDLT rate |
|---|---|
| Up to and including £180,000 | Zero |
| Over £180,000 (Up to and including £250,000) | 3.5% |
| Over £250,000 (Up to and including £400,000) | 5% |
| Over £400,000 (Up to and including £750,000) | 7.5% |
| Over £750,000 (Up to and including £1,500,000) | 10% |
| Over £1,500,000 | 12% |
Scotland – Land Tax
| Property or lease premium or transfer value | SDLT rate |
|---|---|
| Up to and including £145,000 | Zero |
| Over £145,000 (Up to and including £250,000) | 2% |
| Over £250,000 (Up to and including £325,000) | 5% |
| Over £325,000 (Up to and including £750,000) | 7.5% |
| Over £750,000 (Up to and including £1,500,000) | 10% |
How Do I Get a Stamp Duty Refund?
There are a number of circumstances in which it is possible to claim a stamp duty refund, including the following:
- In addition to the bands above, there is a 3% surcharge on buy-to-let property or second homes. If you sell your main residence within 3 years of paying this surcharge you may well be able to claim back the 3%.
- You purchased a property with an annexe before 2018 and paid higher stamp duty rates/
- You or your solicitor incorrectly calculated your stamp duty using the HMRC online calculator, which is notoriously unreliable.
Second home stamp duty refund
If you sell your primary residence within three years of purchasing your secondary residence, you’ll be able to claim a refund for your second home stamp duty tax.
If you buy or sell property on or after October 28, 2018, then you must make the claim within one year of the stamp duty filing on the purchase or within 3 months of the sale’s completion date, whichever one comes first.
If you sell your property on or after October 29th, 2018, then your request must be submitted to HMRC within 12 months from the date of sale, or within one year of the new residence’s stamp duty filing date, whichever is later.
Some common reasons why people sell their main residences include:
- You may lose your buyer but don’t want to give up on your current purchase, so you’re going to buy a second home without selling your first one.
- If you’re going through a divorce, you may be forced to buy another house before your old one sells.
- Buying as a married couple where one partner holds on to their property because they could not sell it or they wanted to keep it for a short period of times
- A change of heart could also be an important factor if you buy a second home but then decide to move into your previous main residence and stay there full time.
First Time Buyers’ Relief
To help people who struggle to afford a down payment for their first home, the government has introduced First Time Buyer Stamp Duty Relief in November 2017.
If you qualify for the first-time buyer scheme, then the stamp duty threshold is lower than it would be otherwise. So, if you buy a property valued at £300,000 or under, you won’t have to pay any stamp duty.
Even if you don’t have anything to pay, you still need to complete a stamp duty return to satisfy HMRC requirements. Your solicitor will usually do this for you.
SDLT relief for multiple dwellings
Multiple Dwellings Relief is a relief that allows taxpayers to claim SDLT relief if they purchase more than one dwelling in a transaction.
The MDR allows the SDLT rate to be applied to the collective average value of the property, instead of the total cost of the property.
Multiple Dwellings Relief has been introduced to reduce the SDLT cost of buying a number dwellings in the same or linked transactions. By adding up the total cost for all the properties and calculating SDLT based on the average price per dwelling, multiple dwellings relief allows buyers to pay less tax than if they had bought them separately. The resulting figure is multiplied by the number of dwelling units to arrive at the total property tax charge.
Building company buys an individual’s home
If there is a transaction where the property trader or company is purchasing a property from someone who is going to buy a new home from the trader.
In this transaction, the property trader or company is exempt from SDLT.
Employer buys employee’s house
Relocating a key employee can be risky. It may lead to losing that employee altogether. For a business, making a simple decision may not always be so easy. It may involve uprooting families or quitting jobs. If a company wants to buy a house for or from an employee who is relocating, the entire purchase price would be exempt from stamp duty land tax (SDLT).
Compulsory purchases
A local authority may be willing to make a compulsory purchase offer on a property to allow another development to go ahead. There are two linked sales in this situation: the individual sells the property directly to the developer, and the developer sells the property to the government. As there are two purchases, without relief there would be SDLT to pay on each. As long as the development is carried out by the property developers, the local authority is eligible for SDLT relief on the sale from the individual.
Property developer subject to planning obligations
Planning obligations are requirements that developers must meet before they can get planning permission. For example, a developer might be required to provide amenities for residents like schools or hospitals. If the Planning obligations trigger the developer to purchase any extra property, which will be transferred to the local authority once completed the developer can claim the relief and avoid paying SDLT.
Transfer of property between companies
A company can claim relief for any tax year if they buy or sell property to another company in the same group. The relief is triggered if:
- the buyer and seller are both companies
- at the effective date of the transaction, both companies are members of the same group.