Stamp Duty Refunds on Additional Residential Properties or Buy to Let property in the UK

From 1st April 2016, residential Stamp Duty Rates were increased by the UK Government for people purchasing an additional property or buy to let property. Anybody purchasing an additional property after this date, would more than likely have to pay the additional 3% SDLT on every stamp duty tax bracket, resulting in a much higher SDLT amount than expected.

However, there are certain exclusions that most people are not aware of, as well as being able to claim a refund of additional Stamp Duty paid when purchasing an additional property.

Higher Stamp Duty Rates - Flow Diagram & Decider

By simply answering a few questions, you can quickly determine if your purchase is subject to the higher rate of stamp duty or SDLT. Use the flow diagram below to help answer the question of "Do I have to pay the higher rate of stamp duty on my purchase?"

Stamp Duty Flow Diagram - Do I have to pay the higher rate of SDLT when purchasing

 

Higher Stamp Duty Rates - Exclusions & when additional SDLT is NOT payable

If you are purchasing an additional property or a buy to let investment property, there are certain conditions when the additional 3% SDLT DOES NOT APPLY. These are:

  • Under £40,000 - If your purchase is under £40,000, you are not required to pay any additional SDLT on your purchase.
  • Caravans, Mobile Homes or Houseboats - If you are purchasing any of these as your home, you will NOT be liable for any additional stamp duty liability.
  • Purpose Built Student Accommodation - Additional SDLT is NOT payable when purchasing purpose built student accommodation.
  • Outside of England, Wales & Northern Ireland - If you are purchasing a property outside of England, Wales & Northern Ireland, then you will NOT be liable for any additional stamp duty charges.
  • Someone else holds a lease on the property - If someone else holds a lease on the property with more than 21 years to run.
  • Less than 7 years lease - If you purchase a lease that has less than 7 years to run.

Replacing your Main Residence / Property - Is the Higher Rate of Stamp Duty payable?

The HMRC have published guidance on this, although it is often very confusing unless you understand your own situation as well as the situation of anybody else taking part in purchasing the additional property. HMRC states the following ...

"You won’t pay the extra 3% SDLT if the property you’re buying is replacing your main residence and that has already been sold.

If there’s a delay selling your main residence and it hasn’t been sold on the day you complete your new purchase:

  • you’ll have to pay higher rates because you own 2 properties
  • you may be able to get a refund if you sell your previous main home within 36 months"

So what does this mean in plain English ....

Claiming a Refund of Highe Rate additional Stamp Duty paid

You won’t have to pay the higher rates of SDLT, if you sell your main home on the same day that you buy your new home. If however, there is a delay and you sell your main home after you purchase your new home you’ll need to pay the higher rates, but you can then claim a refund of the higher rates if your old home is sold within 3 years of buying your new home. The stamp duty refund amount will be the difference that you have paid over and above the standard rates of stamp duty on a transaction that would not be considered for additional stamp duty liablity.

A refund claim must be made within 3 months of the sale or 1 year of the filing date of the return, whichever comes later.

Here are some example scenarios:

Yourself and your partner already own a flat / apartment. You have decided to buy a house in Nottingham at a price of £300,000. The purchase of the house will exchange and complete on the same day that you sell your flat / apartment.

THE RESULT = NO HIGHER SDLT - You have sold your main residence on the same day as buying a new main residence. At the end of the transaction, you will own 1 property. No higher rate of SDLT is payable. Your SDLT calculation would be £5,000.

You own a house and are looking to purchase a flat in Sheffield on a buy to let basis for £220,000.

THE RESULT = HIGHER SDLT WOULD BE APPLIED - At the end of your transaction, you will own more than 1 property. The higher rate of SDLT is applicable and would be calculated at £8,500 instead of £1,900 for a standard residential purchase.

We are buying a new home in London for £595,000, but will sell our current property that we live in after we have moved

THE RESULT = HIGHER SDLT WOULD BE APPLIED - At the end of your transaction, you will own more than 1 property. The higher rate of SDLT will be applied to your £595,000 purchase in London. This will result in an SDLT calculation of £37,600. However if you were to sell your current property within 3 years of buying the new property in London, you will be entitled to make a claim for a refund of the additional SDLT paid. This would be for the amount of £17,850 (£37,600 minus standard stamp duty rates of £19,750 on a £595,000 purchase).

How long does a Stamp Duty Refund take?

HMRC aim to process all stamp duty refund cliams within 15 working days from the date they receive all the information which is requested in the form. If the claim is unsuccessful or there are issues with your refund claim, HMRC will issue a letter explaining the reasons why.

Owning Property Abroad - Do the additional property higher Stamp Duty rates apply?

If you own property abroad and you are purchasing a property in England, Wales or Northern Ireland, then you will have to pay the additional higher rates of stamp duty on your purchase. HMRC take into account any properties owned all over the world when looking at whether additional SDLT is payable on your purchase.