Stamp Duty Refund: Who's Entitled and How Do You Claim?

Stamp Duty Refund Who’s Entitled and How Do You Claim

Stamp Duty Land Tax (SDLT) constitutes a significant aspect of the property acquisition journey and stands as one of the most substantial costs that homeowners are obligated to cover. While evading SDLT can lead to legal complications, it’s noteworthy that certain buyers might have unintentionally overpaid or could potentially meet the criteria for retroscpective exemptions. Consequently, this opens up the possibility for these individuals to be eligible for a stamp duty refund pertaining to the Duty they have previously paid. In this blog post, we will delve into the various circumstances under which a stamp duty refund could be approved, outline the process for initiating a claim, and provide insights into the expected timeframe for receiving a refund from HMRC. Prior to delving into these details, let’s take a moment to refresh our understanding of the fundamental aspects of stamp duty.

What is Stamp Duty?

Stamp Duty Land Tax (SDLT) represents a tax obligation associated with property and land acquisitions within England and Northern Ireland. (Scotland and Wales administer similar systems: Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively). The extent of SDLT payable varies due to several factors. Considerations such as your buyer status (whether you are a landlord, a first-time buyer, acquiring a holiday residence, etc.) and the property's value come into play, influencing the final amount. In property transactions, it is the buyers who assume responsibility for SDLT payment, while sellers are exempt from this obligation. However, in most scenarios, sellers often purchase another property to replace the one they have sold, leading to both parties contributing to these expenses, albeit for different transactions. It's important to note that Stamp Duty is not subject to VAT, as it stands as an independent tax entity.

What about the stamp duty surcharge?

In addition to the regular stamp duty payment, an additional surcharge is levied under the following circumstances:

Acquiring a buy-to-let property either as an individual landlord or through a limited company.
Purchasing a second home valued at £40,000 or more.

This stamp duty surcharge has been in effect since April 1st, 2016.

Now that we’ve clarified this aspect, let’s proceed to the core of our discussion!

Why would anyone be entitled to an HMRC stamp duty refund?

Amidst the established criteria dictating who is liable to pay stamp duty and the calculation of payable sums based on predetermined thresholds, it might appear puzzling as to when a situation could arise warranting a stamp duty refund. Nevertheless, matters are seldom as uncomplicated as they seem.

Outlined below are several scenarios that shed light on why prospective buyers might discover themselves qualified to request a stamp duty refund directly from HMRC:

Second home stamp duty refund

A stamp duty refund for the second home surcharge becomes applicable if you sell your primary residence within a span of three years from the date of paying the additional 3%.

For properties sold on or before October 28, 2018, the claim must be lodged within a year from the stamp duty’s initial filing on the purchase, or within three months following the completion date of the sale—whichever is later.

In cases where the property sale occurs on or after October 29, 2018, your request should reach HMRC within a 12-month period after the sale of your primary residence, or within a year subsequent to the stamp duty filing date for your new residence—selecting the later of the two.

The sale of a primary residence can be prompted by various factors, with some common scenarios including:

Opting to retain your original main residence while acquiring a ‘second home,’ arising from not wanting to abandon the purchase after losing a buyer.
Necessity to procure another property during divorce proceedings, before the sale of the previous primary residence.
Joint purchase where one party retains their property due to an inability to sell or a short-term retention plan.
A change of heart leading to the sale of your former primary residence after purchasing a holiday home, subsequently opting to reside there permanently.

Extra Read: A Comprehensive Guide to Stamp Duty on Second Home in the UK

Stamp duty land tax refund for houses with an annexe

Claiming a stamp duty refund, a significant opportunity often overlooked by many, arises in the context of properties with an annexe. It’s plausible that individuals may have unknowingly overpaid due to this aspect. Should you have paid a stamp duty surcharge on a property housing an annexe, granny flat, or a similarly sized auxiliary building within the grounds of your primary residence, there exists the potential to submit a claim to HMRC.

This prospect owes its existence to a legislative alteration that took effect in 2018. Presently, properties encompassing a self-contained annexe on their premises are recognised as a singular dwelling, rather than being treated as two distinct properties. This recognition holds valid if the principal structure constitutes at least two-thirds of the entire property’s value.

Should your property fall under this category, and your acquisition was executed subsequent to the implementation of these rule amendments, you stand a chance of qualifying for a substantial refund. It’s advisable to reach out to your conveyancer to ascertain the rate you paid and to request a reevaluation if any errors were made in the initial submission.

Refund of Stamp Duty in Shared Ownership for First-Time Buyers

In the 2018 Autumn budget, the chancellor articulated that first-time buyers procuring shared ownership properties would be excluded from the obligation of paying stamp duty, provided that the property’s value remains under £500,000.

Furthermore, this exemption holds a retrospective dimension. This signifies that if you made the purchase of a shared ownership property as a first-time buyer on or following November 22nd, 2017, there is a possibility that you could qualify for a refund of the stamp duty paid.

Paul and Nikki Bewley’s Case: A Turning Point for Uninhabitable Property Stamp Duty

Perhaps you’ve come across the high-profile case of Paul and Nikki Bewley, which recently garnered attention in national newspapers. This significant tribunal hearing has the potential to establish a precedent for future claims among those who have purchased properties categorized as uninhabitable.

The Bewleys embarked on a buy-to-let venture by acquiring a dilapidated bungalow worth £200,000 in January 2017. This property, void of central heating and riddled with asbestos, was intended for a complete overhaul. Their plan encompassed demolishing the existing structure and constructing an entirely new residence, destined for tenant occupancy. Initially assuming exemption from the buy-to-let surcharge, the Bewleys proceeded to pay the standard stamp duty rate of £1,500. However, they soon found themselves informed by HMRC that an additional £7,500 was actually owed!

As stipulated by the Housing Act of 1967, a property must possess essential amenities to fulfill basic human requirements in order to be deemed habitable. This encompasses facilities for hygiene maintenance (such as a functional bathroom and toilet) and provisions for self-cooking (an operational kitchen). HMRC, however, maintained the standpoint that the Bewleys’ buy-to-let investment could potentially be habitable in the future.

Contrary to this stance, the tribunal sided with the Bewleys. The tribunal’s determination rested on the property’s immediate unfitness for habitation, absolving them from the stamp duty surcharge.

This landmark decision carries profound implications, potentially casting a spotlight on numerous past surcharges paid by landlords for properties necessitating substantial renovation to render them habitable. Although it’s still an emerging development, speculation is rife that HMRC may encounter a wave of retrospective claims seeking stamp duty refunds in light of this ruling.

SDLT Refund for Miscomputed Property Values

One noteworthy reason rounding off our list is seemingly straightforward: you could find yourself having paid a higher stamp duty amount than required due to an error within HMRC’s online stamp duty calculator. The website of Her Majesty’s Revenue and Customs provides a tool to assist in determining the accurate payment, although recent revelations indicated that the calculator’s accuracy was not always consistent.

HMRC has since clarified that the online tool is intended for guidance purposes, yet numerous solicitors were actively relying on it for their final computations. This indicates that a considerable proportion, potentially one in six, might have inadvertently paid an excess. While the government authority contests this figure, asserting that most buyers remit the correct SDLT amount, there exists the possibility that solicitors might have placed undue reliance on the calculator’s output.

Individuals potentially affected by this matter encompass those with properties designated as ‘mixed-use’ or homes featuring annexes (refer to the above sections). Should you harbour suspicions of being overcharged, reaching out to your conveyancer or the Law Society could offer clarity on the viability of pursuing an SDLT refund.

What is the stamp duty refund procedure?

The procedure for obtaining a stamp duty refund is relatively uncomplicated and offers the flexibility of online submission or postal correspondence. While engaging a solicitor for this task is an option, you also have the choice to personally undertake the process if you feel confident in doing so. However, exercise caution when encountering firms that propose a 'no win, no fee' arrangement for stamp duty refunds. While this might appear attractive initially, it's essential to recognize that successful claims through such companies often result in substantial fee payments due to their elevated percentage rates.

How long does a stamp duty refund take?

Upon furnishing HMRC with all pertinent information, your refund claim should be processed within a span of 15 days. If this processing window is surpassed, you might become eligible for any corresponding interest on the refund. However, it's important to note that claims for compensation cannot be pursued in such situations.

Seeking Additional Assistance for Your Stamp Duty Refund

This concludes the information shared in this post. However, if you require further guidance, we are more than willing to offer our assistance within our capabilities. For those situated in or near London, we can facilitate connections with reputable professionals who possess the expertise to guide you through the process of submitting your stamp duty refund application. We encourage you to reach out to us.

For those located elsewhere, we extend our invitation to address any queries you may have, whether they pertain to this topic or other property-related concerns. Don’t hesitate to get in touch with us today!