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Stamp duty – how to reclaim your tax

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Thousands of homeowners have been refunded money due to overpaying stamp duty. The past has seen many changes to the property tax so it might be worth checking if you are eligible for these refunds. Here is a guide to check if you are owed the tax refund.

Stamp Duty Land Tax (SDLT) is a fixed tax that is paid by property owners in England, Northern Ireland and Wales. Many people use the expertise of a legal conveyancer or solicitor to act for them; however it is up to the buyer to pay any SDLT fees. In Scotland, this is known as the Land and Buildings Transaction Tax (LBTT)

Stamp duty rates follow the current boundaries:

  1. A property purchase up to the value of £125,000 will have no tax.
  2. Any purchases between £125,001 and £250,000 will have 2% tax.
  3. Any purchases between £250,001 and £925,000 will have 5% tax.
  4. Any purchases between £925,001 and £1.5m will have 10% tax.
  5. Properties above £1.5m will have 12% tax.

Stamp duty has seen many changes since its introduction in 2003. Cornerstone Tax, SDLT experts, believes stamp duty has seen more modifications than other similar taxes.

The most recent change was introduced in April 2016 which seen a 3% surcharge applied when buying a second home. At the end of 2014, the government said that the rates would be reformed from a slab system to an incremental system.

Despite these changes, Cornerstone says the legislation governing it is full of exceptions, exemptions and reliefs covering the vast variety of property types and property buyers.

It may come as no surprise that HM Revenue & Customs (HMRC) has refunded £127m of stamp duty to second-homeowners since the change was applied: 6,800 further property refunds totalling £80m were paid in 2016/17 with an additional £47m repaid in Q2 2017. This means HMRC had to give refunds on 10,700 transactions at an average cost of £11,869 each.

Under the replacement main residence rule, those who purchase a second property without selling the first will have to pay higher stamp duty upfront. If they sell the first home within three years, they are entitled to a refund.

Cornerstone estimates that more than £3bn has been overpaid in stamp duty in 2015/16. David Hannah, principle consultant and founder of Cornerstone, explains: “The law around SDLT is incredibly complex and many advisors who help consumers evaluate how much they should pay are trained only to differentiate between residential and commercial property.

“They simply aren’t familiar with the intricacies of the law’s evaluation criteria, which has led to many consumers being mis-advised unintentionally. There are a number of other reasons why people have overpaid; it’s not always a misinterpretation of the 3% surcharge.”

One case handled by Cornerstone seen a flat buyer name his girlfriend as a guarantor and borrower on the mortgage.  He was wrongly told that as his girlfriend already owned a different property, he was liable for the 3% surcharge. Therefore, he was billed £14,000 for stamp duty. The correct bill was £5,000, a £9,000 variance.

Hannah says: “It’s a common misconception that being on the joint title or mortgage of a property means you have an ‘interest’ in it but this isn’t the case. This is also a good example of how confusion on SDLT hinders parents trying to help children onto the property ladder, a common route to market among first-time buyers. The difference between paying £14,000 or £5,000 in SDLT could well be the deciding factor on whether someone was able to go ahead with the up-front costs of a property purchase or not.”

How to check and retrieve overpaid stamp duty

HMRC states buyers have 12 months from the filing date to modify any returns, including if a change means you’ve paid too much tax.

After 12 months, errors can’t usually be amended but the deadline for claiming back overpaid tax is four years from the effective date of the transaction. Therefore it is possible to claim back overpaid SDLT from August 2013, according to Cornerstone.

The first thing that you will need to do is uncover how much SDLT you paid. If you are not sure how much you paid, you can contact your  solicitor to find out.  In order to claim your refund you will need to have your request in writing and send it to the Stamp Duty Land Tax Office, quoting the UTRN. You will also have to include a copy of the original SDLT return and your claim along with the following:

• An explanation of why you believe you overpaid

• Highlight which parts of the SDLT are incorrect

• Provide revised figures and confirm the price of refund due

• Confirm who should be repaid the refund (you will need to give permission for the refund to be paid to someone else).

Cornerstone provides a SDLT refund service, offering customers free advice. This works on a no-win, no-fee basis and charge a fee of 25% of the sum refunded. Therefore, if confident enough, it might be more financially rewarding to handle the process via HMRC yourself.