Could you have overpaid stamp duty on your property purchase?

Thousands of property buyers are looking to save money on their next purchase thanks to the stamp duty holiday. But overpaid stamp duty could still be an issue…

Stamp duty land tax (SDLT) is payable on all property purchases in England above a certain value. It brings in around £13bn each year for the Treasury, but it seems that some buyers may be paying more than they owe. The myriad of exceptions, reliefs and government changes can make this tax more complicated than it first appears.

According to research from Cornerstone Tax, HMRC needs to address this lack of clarity “urgently”. With an estimated £3bn worth of stamp duty being overpaid in the tax year 2015/2016, getting it right is essential for buyers to avoid paying unnecessary costs.

David Hannah, founder of the advisory firm, believes the overpaid stamp duty is sometimes a mistake on the part of the solicitor.

He says: “The mistakes being made are in almost all cases totally unintentional and otherwise made in fear of underpaying. Most legal professionals are ill-equipped to navigate the complex rules around it and need help.”

“The law around SDLT is incredibly complex and many advisors who help homebuyers evaluate how much they should pay are trained only to differentiate between residential and commercial property.”

Stamp duty for property investment

When it comes to property investment, things can become more complex. This can be a major culprit for overpaid stamp duty. But, says David Hannah, this is not always the case.

He says: “They [solicitors] simply aren’t familiar with the intricacies of the law’s evaluation criteria, which has led to many 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.”

Right now, the UK government has granted buyers a stamp duty holiday. This means that any home costing £500,000 or less is currently exempt from SDLT. This is with the exception of second homes or property investments, where buyers still pay the 3% surcharge.

The intricacies can be confusing

One study by the firm found that more than a third (36%) of homebuyers don’t trust the legal sector. They report feeling “ripped off” by solicitors, and a further 13% felt that their solicitor made mistakes and made them pay too much stamp duty.

A number of issues can arise when calculating a stamp duty bill. This includes whether it is an additional property, whether it is fully residential or mixed use, and whether you are buying multiple units.

For example, multiple dwellings relief allows property investors to calculate their bill differently. SDLT is worked out against the average purchase price of all dwellings in the transaction, rather than individually. But David Hannah says that it is “yet another addition to a maze of different exceptions and exemptions”.

He also points out that even the current stamp duty holiday can complicate things for buyers. One issue is that the short time limit could put solicitors and conveyancers under more pressure. Getting it right for buyers under a time restraint could mean delays and even miscalculations.

He adds: “What is stamp duty land tax? It’s the tax nobody really speaks about until it’s too late. The tax the average homeowner dismisses as something their solicitor can deal with.”

“The tax most solicitors fail to appreciate the full nuance of – until a claim is made against them.”

If you need advice on stamp duty for your property purchase, our independent tax partners can help. Get in touch for more information. You can also sign up for free for early access to our our property investment opportunities.

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