04 November 2017

HMRC forced to refund homebuyers more than £160m in over-paid stamp duty in last year

3 min read

 
Helen Morrissey, Personal Finance Specialist

Helen Morrissey

Corporate PR Specialist – Long Term Savings

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New HMRC figures show that stamp duty rules designed to clamp down on buy-to-let landlords have landed ordinary homebuyers with unexpected tax bills totalling over £160m which have then had to be refunded, according to mutual insurer Royal London.

Higher rates of stamp duty land tax (SDLT) were introduced in April 2016 for those purchasing properties in addition to their main residence. The higher rates are three percentage points above current SDLT rates. (See Table 1 below).

While the tax was introduced to cool down the buy-to-let market, there is potential for people who aim to sell their current main residence and purchase a new one to fall foul of the tax. For instance if someone purchasing a new property found that the sale of the home they wish to leave has fallen through they would find themselves having to pay the higher rates of tax because they effectively own two properties.

The size of the bills received can be considerable. Someone purchasing an average priced property (£320,168) in the South East could find themselves having to pay £15,613 in higher rate SDLT when they were expecting a stamp duty bill of £6,008. Similarly someone purchasing a property in North East England (£130,000) could find themselves facing higher rate SDLT of approx. £4,000 when they were only expecting to pay around £100 (See Table 2 below).

Rather than charge people thousands of pounds and then expect them to claim a refund when their house sale eventually goes through, Royal London believes that the extra tax should only be payable if people are genuinely multiple-property owners. For example, if two properties are still owned a year after the transaction, a second home stamp duty charge could be levied.

Helen Morrissey, personal finance specialist at Royal London said:

HMRC’s approach to higher rate second home stamp duty risks causing severe financial hardship for home buyers. House sales can fall through for all kinds of reasons and the last thing families need is to receive a bill totalling thousands of pounds because they have inadvertently found themselves owning two properties for a short space of time. Our analysis showed that someone buying an average priced property in London could find themselves paying a bill totalling £28,000 when they were expecting to pay approximately £14,000. In the North West it can add up to more than £5,000 when you might have expected to pay only a few hundred pounds. The fact you can get a refund at some point in the future is cold comfort to having to find the money to pay the bill - how many people have ready access to such sums?

We need a more common sense approach. It would be far better for the higher rate of stamp duty payment to fall due on the first anniversary of the completion of the sale. By this point any delays in the sale of a home could be resolved meaning home owners won’t have the stress of finding the extra money. There would also be a massive decrease in the number of refunds HMRC would need to pay out.

- ENDS -

Table 1: Stamp duty land tax rates
Band Existing residential SDLT rates New additional property SDLT rates
£0* - £125k 0% 3%

£125k - £250k

2% 5%
£250k - £925k 5% 8%
£925k - £1.5m 10% 13%
£1.5m + 12% 15%

Source: Gov.uk

Table 2: Amount of stamp duty payable based on average regional house prices
Area  stamp duty Average price Stamp duty Second home
England £240,325 £2,306 £9,516
Northern Ireland £128,650 £73 £3,932
Scotland £144,253 £385 £4,712
Wales £151,672 £533 £5,083

East Midlands

£182,166 £1,143 £6,608
East of England £286,623 £4,331 £12,929
London £481,556 £14,077 £28,524
North East £130,065 £100 £4,000
North West £156,392 £627 £5,319
South East £320,168 £6,008 £15,613
South West £246,159 £2,423 £9,807
West Midlands £185,082 £1,201 £6,754
Yorkshire and Humber £157,762 £655 £5,388

Source: https://www.gov.uk/government/publications/uk-house-price-index-summary-june-2017/uk-house-price-index-summary-june-2017

Calculation source: https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

For further information please contact:

Helen Morrissey, Corporate PR Specialist – Long Term Savings

Notes to editor:

  • HMRC’s Quarterly Stamp Duty Statistics are available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/655416/Quarterly_SDLT_Oct_2017_circ.pdf

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.