HMRC has stated that at least 15,700 buyers overpaid stamp duty last year. Are you, or your buyers, making incorrect assumptions about purchase costs?
Despite the high cost of stamp duty, some buyers and, surprisingly often, their professional advisors, are getting their tax calculations wrong, prompting would-be movers to hold back and others, HMRC has confirmed, to over-pay by tens of thousands.
The Wilmslow branch of estate agents, Jackson-Stops, recently saved one well-heeled buyer several hundred thousand pounds in Stamp Duty Land Tax (SDLT), merely by pointing out one aspect of the current rules. Another nearly fell foul of a much more common misinterpretation, the clarification of which reduced their tax bill by £18,000 to £20,000.
Why the confusion?
The most common misunderstanding concerns liability for the 3% additional property surcharge (lifting SDLT on a £600,000 home from £20,000 to £38,000). HMRC say they get calls about this every day and that over 15,700 buyers overpaid last year.
Some assume that owning any other property triggers liability for this. 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, when you do. Thus, to take one example, when the owner of a buy-to-let property who sold her main residence to live abroad, returned and bought a replacement, she did not have to pay the 3% surcharge. Similarly, the buyer of a four bed cottage with one bed studio who mistakenly paid a £20,000 surcharge, was able to claim it back.
The second issue concerns mixed use properties. CGT liabilities loom large here but, where a purchase includes, for example, offices or land that is clearly agricultural, commercial SDLT rates can apply. In the case of one Midhurst buyer of a farmhouse with 50 acres, the difference was £186,750.
Relief is also available if buying multiple dwellings in a single transaction. The process takes into account the tax that would be paid on the individual average price, as opposed to taxing, say, five £200,000 houses as if they were a single £1 million property. It 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.
In an economy subdued by tight credit controls, political uncertainties and affordability limits, the market over around £1.25 million has been especially hard hit by high property tax rates. This has pushed prices down disproportionately (i.e. by more than the extra SDLT) just as demand for good family houses below £1 million continues its relative strength.
The upshot of this is that, whilst would-be downsizers are left feeling a little disappointed by just how far down they’ll have to go to realise the cash they want, those trading up to what our back page writer might refer to as “a very big house in the country” can get a lot more for the price difference, than at this time last year. Especially if they can pay less stamp duty than envisaged, as well.