Recent news reports have highlighted the fact that many homeowners have overpaid their stamp duty, with many subsequently claiming refunds from HMRC. Part of the problem, it has been claimed, is that the HMRC’s online tax calculator has provided some users with incorrect calculations. This is because it does not take into account certain discounts that may be applicable to certain properties.

HMRC responded by saying that the majority of people did pay the right amount and pointing out that its calculator is a free tool that is only intended to be used as a guide, not to provide an accurate final figure.

Many solicitors said that they relied on the calculator, however, especially as seeking advice from HMRC can involve a long turnaround time.

If you believe that you have made an overpayment due to an incorrect calculation or because you were not aware that certain reliefs were available, then you may be eligible to claim a refund.

Our guide explains the rates that you should be paying on different types of property purchase and the exemptions and reliefs that may apply.

Stamp duty rates for residential properties

For buyers who are not first-time buyers and are purchasing a freehold residential property such as a typical home, the following rates of Stamp Duty Land Tax (SDLT) apply:

  • Properties up to £125,000: 0%, so no stamp duty is owed
  • The next £125,000 (i.e. the portion between £125,001 and £250,000): 2%
  • The next £675,000 (i.e. the portion between £250,001 and £925,000): 5%
  • The next £575,000 (i.e. the portion from £925,001 and £1.5m): 10%
  • Any portion above £1.5m: 12%

First-time buyers’ relief

A stamp duty relief for first-time buyers was introduced in November 2017. Essentially, if you are a first-time buyer purchasing a house below a certain value, then you will either pay less stamp duty or none at all.

The relief applies only to properties costing £500,000 or less. If your purchase is higher than £500,000, then you will pay the standard rates of stamp duty, as shown above.

If you qualify for the relief, then the following rates apply:

  • Properties up to £300,000: 0%, so no stamp duty is owed
  • The next £200,000 (i.e. the portion between £300,001 and £500,000): 5%

You should also note that if you are buying a home jointly with a partner, then they must also be a first-time buyer in order for you to qualify for this relief.

Stamp duty rates for additional properties

If you buy an additional residential property such as a holiday home, second home or a property that you intend to rent out, then you will usually have to pay extra stamp duty.

The surcharge for additional properties only applies if they cost more than £40,000 and are 3% above the standard rates given above.

The higher rates do not apply to any properties below £40,000, non-residential or mixed-use properties, caravans, houseboats or mobile homes.

If you are buying a home with your children for them to use, then you will usually have to pay the higher rate as it could count as an additional residential property. Some mortgage providers may allow you to be a joint party without having your name on the title deeds, however. This can mean that you don’t have to pay the additional property rates, and if your child is a first-time buyer, then they might also qualify for the first-time buyers’ relief. You should seek legal and financial advice to make sure that any such product is suitable, however.

Changing your main home

If you buy a new main residence and do not or cannot sell your current main home immediately, then you will have to pay the higher rate of stamp duty as you will technically be owning two homes. The new one will count as an additional property, attracting the extra 3% surcharge.

If you do go on to sell your old main home within three years, then you will be able to claim a refund on the extra stamp duty you have paid.

Homes with an annexe or “granny flat”

When the rules about additional properties were first conceived, a house with two dwellings – such as a main part and a granny flat – would initially have meant paying the extra 3% for a second home on the purchase price of the whole property. This was going to be the case even if only the main part was going to be lived in.

An amendment was made, however. The Government’s guidance notes said that the amendment “removes some transactions from the higher rates of [stamp duty] where such an annex or outbuilding is the only reason that the higher rates would apply”.

Now, you will only pay the standard rate on a property with a separate dwelling such as a granny flat as long as the value of the annexe is no more than a third of the total price paid. If there are more than one self-contained properties within the overall property, then their combined value must be no more than a third of the total purchase price.

It’s worth noting that the granny flat or annexe does not actually have to be used as a residence. Additionally, if the self-contained parts are valued at more than a third of the total price paid but are intended to be rented out, then there may be a case for the property to be classed as mixed use or to claim Multiple Dwellings Relief (see below).

Multiple Dwellings Relief

If you have bought more than one dwelling at the same time, then you may be eligible for Multiple Dwellings Relief (MDR), which can reduce the amount of stamp duty you have to pay.

To work out how much stamp duty you have to pay, follow these three steps:

  • Divide the total amount you paid for the properties by the total number of dwellings
  • Work out the stamp duty due on this figure
  • Multiply the resultant tax figure by the number of dwellings

Note that there will still be a minimum 1% rate.

For example, if you bought five houses for a total of £1m, then you would follow the steps above like so:

Divide £1m by 5 to get £200,000
Work out the stamp duty due. This is 0% of the first £125,000 + 2% of £75,000 = £1,500
£1,500 x 5 = £7,500

However, this is below the minimum rate of 1%.

1% of £1m = £10,000, which would be the stamp duty you pay.

Stamp duty on non-residential property

Property that has a commercial use has a different rate of stamp duty. This can include premises such as offices and shops but also forest, agricultural land, and purchases of six or more residential properties bought in the same transaction.

The non-residential/mixed property stamp duty rates are as follows:

  • Properties up to £150,000: £0, so no stamp duty is owed
  • The next £100,000 (i.e. the portion between £150,001 and £250,000): 2%
  • Any portion above £250,000: 5%

If you have purchased a number of properties, you will want to work out whether using non-residential/mixed rates or Multiple Dwellings Relief will be more beneficial. Getting expert advice from property tax specialists can help in this area.

Mixed use property and stamp duty

Some properties might have a mixed residential and dwelling status, such as properties that combine a home with offices, agricultural buildings or agricultural land. An example might be a home with fields that are rented out to a local farmer or paddocks that are used by a riding school. A shop with a flat above it could be another example.

In cases like these, you may qualify to pay the rates for stamp duty on non-residential and mixed-use properties, as listed above. This can make a significant difference, particularly for high-value property purchases.

If you believe that you have paid residential rates on a property that should be classed as mixed use, then you might be eligible for a refund.

Applying for a stamp duty refund

If you want to apply for a stamp duty refund because you paid the additional home surcharge on a property that you later sold, you can find guidance on the government’s website, GOV.UK. Note that you have to make a claim of this type either within three months of the sale of the previous main home or within 12 months of the filing date of the return, whichever is the later date.

If you are claiming for another reason, such as because you believe that you should have qualified for mixed-use relief, then you will need to write to the Stamp Duty Land Tax Office, quoting your Unique Taxpayer Reference Number (UTRN) and enclosing the original stamp duty tax return.

You will also need to:

  • Explain why you think you overpaid your stamp duty
  • Point out which points of the return were wrong
  • Provide revised figures and a confirmation of the refund amount due
  • Confirm who any repayment should be made to

The deadline for claiming a refund on stamp duty you have overpaid is four years from the effective date of the transaction. This usually refers to the completion date for the purchase of the property.