Author: Carol Bragg
HMRC’s inaccurate Stamp Duty calculator may have resulted in up to £2 billion in stamp duty being overpaid: because the tool did not take into account discounts due on certain transactions.
Tax advisors report dealing with a 400% increase in refund claims because even solicitors were relying on the tool to perform stamp duty calculations. It claims that HMRC is processing 900 cases a month, with one in six transactions calculated incorrectly.
HMRC has responded by saying that such figures are incorrect and whilst the online calculator is intended as a guide, the majority of buyers will end up paying the right amount.
Stamp duty on residential property in England is charged at the following rates:
- 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%
The rates are different in Scotland and Wales.
If you are purchasing a residential property and you already own another property, you’ll usually have to pay 3% on top of the normal rates.
In England, reliefs and exemptions are available on certain properties, as follows:
Replacing your main home
Sometimes it will be necessary to purchase a new home before selling your old one: and this will attract the 3% ‘second home’ uplift in Stamp Duty rates at the time of the purchase. However, if you sell your old home within 36 months, you’ll usually be able to get a refund of the extra Stamp Duty paid.
If you and any other person that you’re buying the property with are first time buyers and you purchase a home for no more than £500,000, on or after 22 November 2017, you’ll be entitled to special stamp duty rates as follows:
- 0% on the first £300,000
- 5% on the remainder up to £500,000
If the price of your home is more than £500,000, you’ll have to pay normal stamp duty rates instead.
If you buy several properties together (up to 6) you work out the Stamp Duty by dividing the total amount paid for the properties by the number of dwellings purchased, working out the tax due on this figure at normal rates, then multiplying this amount of tax by the number of properties purchased. This is subject to a minimum rate of 1%. The relief typically results in savings because of the multiple use of the lower rates in the Stamp Duty bands.
If you buy 6 or more properties, commercial rates of Stamp Duty apply.
Mixed use property
Where your purchase includes both residential and non-residential property, it may be classed as ‘mixed use’, in which case commercial Stamp Duty rates apply. For freehold properties, 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%
For properties valued at £925,001 or more, substantial savings can be made.
There may be other good reasons to claim mixed use – for example, if you were to sell your home and replace it with another property which included a number of additional units. In this case, the whole transaction could be subject to the 3% second home surcharge, unless you successfully claim that the units were commercial lets and therefore the property was mixed use.
If a property is purchased with farmland which is not simply used for the amenity of the house, mixed use rates may apply. This would typically be if the property came with paddocks or fields which were to be let to a farmer.
Where you purchase a single property as your main residence that includes two or more dwellings (for example, a house and a granny flat), the additional dwelling will not be considered a second home provided that two thirds of the price paid are attributable to the value of the main dwelling (i.e. the granny flat is not worth more than a third). If there are two granny flats, the total value of these must not be more than a third of the overall price paid.
It does not matter whether the second building will actually be used as a granny flat (although note that if it was to be commercially let, you may alternatively be able to argue mixed use).