General Misconceptions

(Common SDLT Misconceptions and Misunderstandings)

Misconception: Individuals May Incorrectly Assume 3% Higher SDLT Rates Only Apply to Investors.

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

The 3% higher SDLT rates apply to anyone buying an additional property, not just investors, including those purchasing a new main residence while owning another home.

Many believe that the 3% higher SDLT rates are exclusively a concern for investors or landlords. This misconception leads to the assumption that ordinary homebuyers, looking to purchase a new residence while owning another, are exempt from these increased rates. 

The Reality
The 3% surcharge applies not only to landlords and investors but also to individuals purchasing a new home who already own a property. This means that anyone buying an additional property, whether as a buy-to-let, a holiday home, or even a new primary residence while retaining the first, could be subject to the higher SDLT rates.

Examples

  1. Misunderstanding Who is Affected: The higher SDLT rates are not limited to professional real estate activities. For example, if you decide to buy a new house but plan to keep your current home, you will likely have to pay the additional 3% SDLT on the entire purchase price of the new property. This applies even if the new home is intended as your main residence.
  2. Marriage and Civil Partnerships Overlooked: For instance, if you or your spouse/civil partner own another property, purchasing a new home can attract the higher SDLT rates, regardless of who the official buyer is. This rule underscores the need for couples to consider their combined property ownership when planning to buy a new home.
  3. Ownership Definitions Misinterpreted: Another common area of confusion lies in the scope of ‘ownership.’ The higher SDLT rates consider property ownership worldwide. This means a property owned abroad can also make you liable for the increased rates in the UK. For example, if you own a holiday villa in Spain and are buying a new home in the UK, the 3% surcharge applies.

In summary, the 3% higher SDLT rates have a wider applicability than many initially think, affecting not just investors but also individuals and families looking to change their living situation while owning property elsewhere. 

Misconception. SDLT Surcharge for Additional Properties is Unavoidable

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ The additional 3% SDLT surcharge on additional properties is not always unavoidable; exemptions and reliefs exist for situations like replacing a main residence or purchasing mixed-use properties, requiring careful declaration and possibly professional advice to navigate.

Many buyers believe that when purchasing an additional residential property, the additional 3% Stamp Duty Land Tax (SDLT) surcharge is always applicable, with no exceptions.

Reality: Exemptions and Reliefs Can Apply

In fact, there are circumstances under which buyers can be exempt from this surcharge or can apply for reliefs that reduce their SDLT liability.

How Exemptions and Reliefs Work

  • Replacing a Main Residence: If you sell your previous main home on the same day you purchase a new one, the 3% surcharge may not apply, even if you own other properties.
  • Mixed-Use Properties: Purchasing a property that has both residential and non-residential elements might not attract the surcharge.
  • Significant Property Developers: Developers who buy residential properties as part of their business might qualify for exemptions.
  • Inherited Properties: Inheriting a share (50% or less) in another property within 36 months of a purchase does not necessarily trigger the surcharge.

Key Points

  • Not Automatic: The 3% surcharge is not automatically applied to all transactions involving additional residential properties.
  • Conditions Apply: Exemptions and reliefs are subject to specific conditions that must be met, such as the timing of the sale of a main residence.
  • Declaration Required: Buyers need to correctly declare their circumstances on the SDLT return to benefit from any exemption or relief.
  • Professional Advice Recommended: Due to the complexities of SDLT regulations, seeking professional advice can help navigate these rules effectively.

  

Misconception. Refunds on Overpaid SDLT are Automatic

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ If you overpay Stamp Duty Land Tax (SDLT), you must actively submit a refund claim to HMRC with supporting documentation; refunds are not issued automatically.

Many buyers believe that if they overpay Stamp Duty Land Tax (SDLT) due to a miscalculation or misunderstanding, the excess amount will be automatically refunded by HM Revenue & Customs (HMRC).

Reality

Active Claim Required for SDLT Refunds. In truth, SDLT refunds are not issued automatically. If you’ve overpaid SDLT, you must proactively submit a refund claim to HMRC, providing the necessary documentation and details to support your claim.

How to Claim an SDLT Refund

  1. Identify the Overpayment: First, recognise that an overpayment has occurred, which could be due to reasons like misclassification of the property, incorrect application of rates, or failure to claim applicable reliefs.
  2. Gather Documentation: Compile all relevant transaction documents, including the SDLT return, proof of payment, and any evidence supporting why the overpayment occurred (e.g., additional information on property use that qualifies for relief).
  3. Submit Your Claim: Complete the SDLT refund claim form available on the HMRC website. Include a detailed explanation of the overpayment and attach all supporting documentation.
  4. Deadline: Submit your claim within the specified timeframe. For most SDLT refunds, the deadline is 4 years from the filing date of the SDLT return.

Key Points

  • Proactivity: You must actively claim any overpaid SDLT; it’s not automatically refunded.
  • Documentation: Have all relevant transaction documents and evidence for the overpayment ready.
  • Understanding SDLT Rules: Knowing the correct SDLT rates, reliefs, and exemptions is important to avoid overpayments.
  • Deadlines: Be aware of the time limits for claiming a refund to ensure you don’t miss out.

 

Misconception. SDLT Reliefs Don’t Apply to Companies or Investors

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ SDLT reliefs are available to companies, investors, and property developers, not just individual homebuyers, offering significant potential savings on property transactions and developments.

Many believe that Stamp Duty Land Tax (SDLT) reliefs are exclusively available to individual buyers, leaving corporate entities and investors to face the full brunt of SDLT without any form of mitigation.

The Reality

In truth, SDLT reliefs are not just for individual homebuyers. Companies, investors, and property developers can also benefit from a range of SDLT reliefs designed to support various types of property transactions and developments.

How It Works

  • Multiple Dwellings Relief (MDR): Investors buying multiple residential properties in one transaction can benefit from MDR, which can significantly reduce SDLT charges by treating the purchase as multiple transactions rather than one.
  • Relief for Property Developers: Companies involved in property development may qualify for reliefs aimed at promoting residential and commercial property development.
  • Relief on Transfers within a Group: Corporate groups can transfer properties between companies without SDLT liabilities under certain conditions, facilitating restructuring or strategic realignment.
  • Charitable Relief: Companies operating as charities or owning properties for charitable purposes can claim SDLT relief on purchases used for charitable activities.

Key Points

  • Applicability: SDLT reliefs extend to both individuals and corporate entities, including property investors and developers.
  • Conditions Apply: Eligibility for SDLT reliefs often depends on meeting specific criteria, such as the nature of the property transaction or the intended use of the purchased property.
  • Strategic Planning: Understanding and planning for SDLT reliefs can significantly impact the financial viability of property investments and development projects.

Misconception. Foreign National Buyers Cannot Be Refunded the 2% Surcharge

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ Foreign national buyers can qualify for a refund of the 2% SDLT surcharge if they become UK tax residents or meet the 183-day rule in the UK within a specific timeframe after purchasing the property.

Many believe that once a foreign national buyer pays the additional 2% SDLT surcharge applicable to non-UK residents purchasing residential property in England and Northern Ireland, it’s set in stone—meaning no refunds are available under any circumstances.

The Reality

In certain situations, foreign national buyers can indeed qualify for a refund of the 2% SDLT surcharge. The key is understanding the specific criteria and timelines for eligibility, primarily based on changes to the buyer’s residency status after the purchase.

How Refunds are Possible

Refunds are designed to accommodate changes in circumstances that bring the buyer into closer alignment with UK tax resident criteria within a specific time frame after the purchase. This includes:

  • Becoming a UK Tax Resident: If the buyer becomes a UK tax resident within the same tax year following the property purchase, they may qualify for a refund of the surcharge.
  • Meeting the 183-Day Rule: The buyer needs to spend at least 183 days in the UK in any continuous 365-day period that falls partly before and partly after the date of the transaction.

Key Points

  • Residency Requirements: Understanding UK tax residency rules is crucial. Simply owning property in the UK does not make one a tax resident.
  • Application Timeline: There’s a deadline for applying for the refund after meeting the necessary residency criteria, typically within a certain period after the end of the tax year in which the purchase was made.
  • Documentation and Proof: Buyers must provide adequate documentation proving their physical presence in the UK to meet the residency criteria, including travel records and evidence of a UK residence.

Misconception: Non-UK Resident Shareholders Exempt from Stamp Duty Surcharge on Property Purchases with UK Residents

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ If even one shareholder in a property purchase is non-UK resident, the entire transaction is subject to the non-resident stamp duty surcharge, regardless of the proportion of shares held by non-residents.

Some believe that if a property is bought with both UK residents and non-residents as shareholders, they won’t have to pay the non-resident stamp duty surcharge. This belief could lead to unexpected financial surprises during the property acquisition process.

The Reality

The UK law on stamp duty surcharge is clear: if even one shareholder or purchaser of the property is non-resident for tax purposes in the UK, the entire transaction is subject to the non-resident stamp duty surcharge. This rule applies regardless of the proportion of shares held by non-residents versus residents. The surcharge, set at 2%, is applied to the entire purchase price of the property, significantly affecting the total cost.

Key Points and Examples

To understand the implications, consider the following key points:

  • Non-Resident Surcharge Applies Regardless of Share Proportions: It doesn’t matter if the majority of shares in the purchasing entity are held by UK residents. If any shareholder is non-resident, the surcharge applies.
  • Company Registration Location Doesn’t Matter: Even if the company buying the property is registered in England and Wales, the presence of a non-resident shareholder means the purchase is treated as non-resident for duty purposes.

Example

A company that’s buying a property, with 70% of its shares held by UK residents and 30% by non-residents. Despite the majority of shares being in the hands of UK residents, this company would still need to pay the non-resident stamp duty surcharge on the property purchase. 

  

Misconception. The 3% Surcharge on a Second Home Cannot Be Refunded

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ Refunds of the 3% SDLT surcharge for purchasing a second home are possible if the new property replaces the buyer’s main residence and the previous residence is sold within 36 months of the new purchase.

Many believe once the 3% Stamp Duty Land Tax (SDLT) surcharge for purchasing a second home is paid, it’s a final transaction with no option for a refund.

Reality

Refunds of the 3% Surcharge Are Possible. In certain circumstances, buyers can reclaim the 3% SDLT surcharge. This typically occurs when the new property replaces the buyer’s main residence.

How Refunds Work

Reclaiming the Surcharge: If you sell or dispose of your previous main residence within 36 months of completing your new purchase, you can apply for a refund of the 3% surcharge.

Application Process: To claim a refund, you must apply to HM Revenue & Customs (HMRC) within 12 months of the sale of your previous main residence or within 12 months of the filing date of the SDLT return, whichever comes later.

Key Points

  • Eligibility: Must have purchased a new main residence before selling the previous one.
  • Time Frame: The previous main residence must be sold within 36 months of the new purchase.
  • Application Deadline: Claim must be made within 12 months of the sale of the previous main residence or the SDLT return filing date.

 

Misconception. 3% SDLT Surcharge for Commercial Owners Buying Residential Property

(Common SDLT Misconceptions and Misunderstandings>General Misconceptions)

➤ Owning a commercial property does not trigger the 3% SDLT surcharge when buying a residential property for the first time; the surcharge applies only to additional residential properties.

Many believe that if they own a commercial property and decide to purchase a residential property, they will automatically be subject to this additional 3% tax. 

The Reality

The surcharge applies to the purchase of additional residential properties when the buyer already owns one or more residential properties. 

The key factor here is the distinction between residential and commercial properties. Owning a commercial property does not count towards the residential property count when calculating the applicability of the 3% surcharge. Therefore, if you own a commercial property and are buying a residential property for the first time, you will not automatically be hit with the 3% SDLT surcharge.

Key Points and Examples

  1. Distinction Between Property Types: It’s important to understand the difference between commercial and residential properties in the context of SDLT. Commercial properties include offices, shops, warehouses, and other non-residential buildings. In contrast, residential properties are those suitable for living, such as houses and apartments. The 3% surcharge targets the latter when purchased in addition to existing residential property holdings.
  2. First-time Residential Buyers: If someone owns commercial property and then purchases their first residential property, they are still eligible for first-time stamp duty relief, as owning commercial property does not disqualify them from this benefit.
  3. Examples and Exceptions: Consider a business owner who has invested in a commercial unit for their operations. If this owner decides to buy a home, they are not subjected to the 3% surcharge, assuming it’s their first residential purchase. However, if they already own a residential property and are buying another, the surcharge applies, demonstrating the importance of the property count and type in these transactions.

In conclusion, the misconception about the automatic application of the 3% SDLT surcharge for commercial property owners moving into the residential market is not accurate. 

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.