Have You Overpaid on Stamp Duty?

According to a recent report by estate agents Jackson-Stops, many buyers are still misunderstanding the 3% stamp duty surcharge and overpaid on stamp duty.

The stamp duty requirement which was introduced in April 2016 applies to a purchase of second homes and buy-to-let properties.

Data shows that at least 15,700 buyers overpaid on their stamp duty bill in 2017. Jackon-Stops highlights one example, a buyer that was saved from paying an additional £18,000 bill on a purchase worth £600,000. The buyer in question paid just £20,000, not the £38,000 they thought was applicable.

A spokesperson of Jackson-Stops said: “Some assume that owning an other property triggers liability for the stamp duty surcharge.

“But it should not apply when replacing your ‘principal place of residence’ and, if you move before selling your previous home, you have three years to claim the 3% surcharge back.”

According to HMRC, who provided the figures for the report, the majority of enquiries they receive relating to the surcharge are because of tax misunderstandings. They went onto to describe how mixed-use dwellings add another confusing aspect to the process.

This includes properties that comprise offices or agricultural land – these often come under commercial rulings rather than standard residential stamp duty rates. While capital gains tax can be higher, the stamp duty savings can be huge when applied to mixed-use properties.

Jackson-Stops cited another example of a buy-to-let owner who didn’t need to pay the stamp duty surcharge after selling their main residence to live abroad before returning and buying a replacement property.

Purchasing of multiple dwellings also causes confusion. The process currently taxes based on the individual average price rather than counting it as one cost.

“(The process) applies a minimum rate of 1% but, again, can make a substantial difference. Ultimately, HMRC deals with all purchases on a case-by-case basis.”

Investors looking at buy-to-let properties or buying a second home should consider doing as much research as possible on how stamp duty will affect them. This will help mitigate issues of overpaying on any purchases that are made.

For help with working out how much stamp duty you should be paying, consider contacting HMRC. Detailed information will be available on how the tax will apply to you.

Read more about tax relief in our short guide here.