A recent news report in the Times has highlighted that the Government’s online Stamp Duty calculator is providing some users with incorrect calculations, failing to take into account stamp duty discounts available on certain properties.
Whilst HMRC has responded by saying most buyers pay the correct amount, it has pointed out that the online calculator is meant to be a guide, not a final figure. However, solicitors have said they frequently use the calculator, particularly in time sensitive transactions where seeking advice directly from HMRC would mean a long turnaround time.
If you’ve paid too much stamp duty as a result of an incorrect calculation or lack of awareness that a particular relief is available, you might be able to claim a refund. We explain the different rates of stamp duty and the circumstances under which a relief or exemption may be available:
Residential property Stamp Duty rates
The Stamp Duty rates that apply for purchases of residential freehold property (i.e. a typical house) where the buyer has purchased a home previously are as follows:
- Properties up to £125,000 – £0
- 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%
You can use the HMRC Stamp Duty Land Tax calculator to find out how much stamp duty will be due for standard transactions.
Discounts for first time buyers
First time buyers enjoy a generous discount on standard Stamp Duty rates
The First Time Buyer relief has applied from 22nd November 2017. If you’re a first time buyer, you’ll pay a discounted rate of Stamp Duty – provided that your home costs no more than £500,000. The rates for first time buyers are:
- Properties up to £300,000 – 0%
- The next £200,000 (the portion from £300,001 to £500,000) – 5%
If you’re buying with a partner, they must also be a first time buyer to take advantage of the special rates. If your property is worth more than £500,000, you’ll pay the standard Stamp Duty Rates on the whole transaction instead.
Rates for additional properties
If you already own a property, a second home in the UK would attract the 3% uplift in Stamp Duty rates
Usually, you’ll have to pay 3% on top of the normal Stamp Duty rates if you purchase an additional residential property for more than £40,000. This might be for example a property you intend to rent out, a property you’ve purchased with one of your children for their use, or a holiday home.
The rates payable are 3% above the standard rates above.
The higher rates do not apply to purchases of:
- non-residential or mixed use properties (see below);
- transactions where the consideration is less than £40,000; and
- caravans, houseboats and mobile homes.
Note that if you’re purchasing a property with one of your adult children to aid their mortgage application, a number of mortgages exist that allow you to be a joint party to a mortgage without needing to appear on the title deeds. The advantage of this is that usually you will not have to pay the 3% increase in stamp duty for owning an additional property. In addition, it should also mean that as a sole purchaser who plans to live in the property purchased, your child can claim the first-time buyer’s relief. However, you’ll need to take independent legal and financial advice to satisfy yourself that this type of product is suitable for your needs. See ‘Will my son get first-time buyer stamp duty relief if we get a joint mortgage?’ ~ The Guardian.
Replacing your main home
Sometimes it may be necessary to move home before you’ve sold your old property – and this means you’ll end up paying the higher rate of Stamp Duty on your new home (i.e. the 3% increase for second properties). However, if you then sell your previous main home within 36 months, you’ll usually be able to claim a refund of the extra Stamp Duty paid.
Buying a home with a ‘granny flat’
Provided that your Granny flat is worth no more than 33% of the overall transaction, the higher rates of Stamp Duty for second properties should not apply.
When the Stamp Duty rules which hiked fees for the purchase of a second property were initially conceived, someone buying a property which counted as two dwellings (e.g. a house and a granny flat) would have been liable to pay the 3% Stamp Duty uplift on the whole purchase price. This would even have been the case if the main property was to be used as the buyer’s only residence.
Fortunately, an amendment was made to rectify this unintended position. According to the guidance note, the amendment:
“removes some transactions from the higher rates of [Stamp Duty] where such an annex or outbuilding is the only reason that the higher rates would apply.”
Now, the standard rate of Stamp Duty will apply where:
- Dwelling A in the same building as, or in the grounds of Dwelling B, and
- Dwelling B is at least two thirds of the value of all of the purchased dwellings (including Dwelling B) within its grounds.
In other words, if you purchase a home with a self-contained granny flat attached or within the grounds, you’ll pay the standard residential rate of Stamp Duty as set out above provided that the value of the Granny Flat is no more than a third of the overall price paid. If there is more than one self contained property, the overall value of the self contained properties must be no more than a third of the total price paid.
There is no actual requirement that the self contained properties be used as a granny flat. Indeed, if the value of the self contained properties is more than a third of the price paid but they are to be used as commercial lets, a claim for mixed use may be possible, which could be advantageous for higher value properties. Alternatively you may be able to claim Multiple Dwellings Relief. If you believe either may apply, we would suggest contacting the solicitor who dealt with your purchase for advice.
Multiple Dwellings Relief
Multiple Dwellings Relief can offer substantial savings in Stamp Duty, due to the multiple use of the lower rates in the Stamp Duty charging bands.
If you’ve purchased more than one property at the same time, Multiple Dwellings Relief (MDR) may assist in reducing the total Stamp Duty payable. To calculate the amount of Stamp Duty payable, you:
- Divide the total amount paid for the properties by the number of dwellings
- Work out the tax due on this figure
- Multiply this amount of tax by the number of dwellings
This is subject to a minimum rate of 1%.
HMRC provides a helpful worked example:
- You buy 5 houses for £1 million.
- £1 million divided by 5 is £200,000.
- The amount of SDLT you pay on £200,000 is £1,500 (0% of £125,000 + 2% of £75,000).
- £1,500 multiplied by 5 is £7,500.
- But that’s less than 1% of £1 million, which is £10,000. The amount of Stamp Duty you pay is £10,000.
As noted above, if you purchase a property with a granny flat or similar self contained unit where the value of the unit is more than 33% of the overall price paid, it may be worth considering whether Multiple Dwellings Relief would apply, thereby avoiding the 3% hike for second homes. We would suggest speaking to the solicitor dealing with your transaction for advice.
There are different rates of Stamp Duty charged for commercial property.
If you buy commercial premises such as a shop, office, agricultural land or forest, or 6 or more residential properties bought in a single transaction, the non-residential/mixed property Stamp Duty rates apply.
These are as follows:
- Up to £150,000 – £0
- The next £100,000 (the portion from £150,001 to £250,000) – 2%
- The remaining amount (the portion above £250,000) – 5%
If you are purchasing or have purchased a number of properties (e.g. 8), you will need to work out whether it is more tax efficient to claim Multiple Dwellings Relief or to pay the non-residential/mixed property rates. If you believe you have overpaid, we would suggest contacting the solicitor who dealt with the purchase for advice.
Mixed use property
Farmland, paddocks or similar which is outside of the ‘curtilage’ of your home may allow you to use the mixed use Stamp Duty rates.
Buyers who purchase a property that has a mixed use : i.e. residential and commercial or residential and farmland, may be able to use the non-residential/mixed property tax rates set out above. This may be of little advantage for lower value properties, but for higher value properties it can make a significant difference to the amount of Stamp Duty that is paid.
The relief may apply where you have land considered to be outside the ‘curtilage’ of your home and therefore not for the ‘amenity’ of the dwelling. An example might be fields that are rented to a local farmer, paddocks rented to a local riding school and so on. The relief will not apply where the land is considered to be for the amenity of the house.
Take, for example, a property purchased for £1.5m which includes a field rented out to a local farmer. If the standard residential rate of Stamp Duty were applied, Stamp Duty would be charged at £93,750:
|Purchase price bands (£)||Percentage rate (%)||SDLT due (£)|
|Up to 125,000||0||0|
|Above 125,000 and up to 250,000||2||2,500|
|Above 250,000 and up to 925,000||5||33,750|
|Above 925,000 and up to 1,500,000||10||57,500|
|Total Stamp Duty:||93,750|
If mixed use rates are applied, the Stamp Duty would be £64,500 (based on the rules from 17 March 2016):
|Purchase price bands (£)||Percentage rate (%)||SDLT due (£)|
|Up to 150,000||0||0|
|Above 150,000 and up to 250,000||2||2,000|
|Total Stamp Duty:||64,500|
Mixed use rates also apply to other types of property – such as a shop with a residential flat above.
If you believe you may have paid the standard residential Stamp Duty rates on a purchase that could be classed as mixed use, we would suggest contacting the solicitor who dealt with the purchase for advice.
Applying for a refund of Stamp Duty
If you want to apply for a refund because you purchased a new home before selling your old one (and therefore paid the uplifted ‘second home’ Stamp Duty rates), click here for guidance. Note that this type of refund must be claimed within 3 months of the sale of the previous main residence or within 12 months of the filing date of the return, whichever comes later.
If you are applying for a refund in any other circumstances – for example, because one of the reliefs should have applied, HMRC advise that you should write to Stamp Duty Land Tax Office, quoting the UTRN and including a copy of the original SDLT return with your claim. They ask that you:
- explain why you think you’ve overpaid
- say what parts of the SDLT return were wrong
- give revised figures and confirm the amount of refund due
- confirm who they should pay the refund to.
The deadline for claiming back tax you’ve overpaid is 4 years from the effective date of the transaction. This is usually the completion date for the purchase of the property or properties.
Disclaimer: This article does not constitute financial or other professional advice and is general in nature. It does not take into account your specific circumstances and no lawyer-client relationship is formed. You should consult with a lawyer or other professional to determine what action may be best for your individual needs.