Other Reasons For Reclaims

(Overview: Process of Reclaiming SDLT)

Comment: Stamp Duty Land Tax (SDLT) can be reclaimed in various situations, providing financial relief to property buyers who initially overpaid. This article summarises scenarios and principles for reclaiming the surcharge.

Key Points:

  • Reclaim the 3% surcharge when replacing your main residence.
  • Significant delays in selling your old home can justify a reclaim.
  • Miscalculations in SDLT payment can be corrected for a refund.
  • Changing property use or correcting property status may lead to a reclaim.
  • Divorce or separation might make you eligible for reclaiming the surcharge.

Main Principles:

  • Eligibility for reclaim is often tied to replacing the main residence or correcting errors.
  • Understanding specific conditions and providing proper documentation is crucial.
  • Timely actions and clear evidence support a successful reclaim.

Incorrect Application of the 3% Surcharge

(Overview: Process of Reclaiming SDLT>Other Reasons For Reclaims)

➤ You might reclaim the 3% higher rate SDLT surcharge in scenarios such as selling a main residence and buying a new one, significant delays in selling your old home, miscalculations, changes in property use, incorrect property status, or after a divorce/separation.

The 3% higher rate Stamp Duty Land Tax (SDLT) surcharge was introduced on April 1, 2016, and is applicable to purchases of additional residential properties in the UK. Here are several scenarios where a reclaim of the 3% SDLT surcharge might be possible:

  1. Replacement of Main Residence

Scenario and Conditions: If you sell your main residence and purchase another, you might be eligible to reclaim the 3% surcharge. The key condition here is that the new property must become your main residence.

Example: Suppose you sold a house where you lived and then bought another house to replace it as your main residence. Even if you own additional properties, the 3% surcharge paid on the new main residence can be reclaimed, provided the transaction aligns with the replacement of the main residence rules.

  1. Significant Delay in Selling Previous Main Residence

Scenario and Conditions: If there is a delay in selling your previous main residence after purchasing a new one, you initially pay the 3% surcharge. However, if you sell the previous main residence within three years of buying the new one, you can reclaim the surcharge.

Example: You buy a new home but couldn’t sell your old one immediately due to market conditions. After two years, you manage to sell the old home. Here, you can apply for a refund of the 3% surcharge paid on the new home.

  1. Error in SDLT Payment Calculation

Scenario and Conditions: If the SDLT including the 3% surcharge was miscalculated (e.g., the property was mistakenly classified), you can claim a refund.

Example: You purchase a new property, intending it to be a secondary residence, but due to an error, the primary residence status was applied, and the 3% surcharge was incorrectly charged. In such cases, rectifying the error with HMRC can lead to a surcharge refund.

  1. Changes in Property Use

Scenario and Conditions: If a property initially purchased as a second home or investment is later converted to a primary residence, a reclaim might be possible depending on the timing and circumstances.

Example: You bought a flat to use as a rental property but later decide to move in and make it your primary residence. After making it your main home, you might be eligible to reclaim the 3% surcharge if other statutory conditions are met.

  1. Incorrect Property Status

Scenario and Conditions:  If a property was incorrectly classified as residential when it should have been non-residential or mixed-use, the 3% surcharge could be reclaimed.

Example: You bought a property primarily used for commercial purposes with a minor residential part, yet it was mistakenly classified entirely as residential for SDLT purposes. Correcting this misclassification could enable you to reclaim the surcharge. This also applies if a property is assessed as non-residential due to its condition.

  1. Divorce or Separation

Scenario and Conditions: If a property was purchased when married but the couple later separates or divorces, and one person retains the property as their main residence, they might reclaim the surcharge.

Example: A couple buys a second home, but following a divorce, one ex-spouse keeps the home as their primary residence. They could reclaim the 3% surcharge under certain conditions.

HMRC have an application process for reclaiming higher rate stamp duty found here: https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties 

First-Time Buyer Relief Not Claimed

(Overview: Process of Reclaiming SDLT>Other Reasons For Reclaims)

➤ First-time buyers who overpay SDLT due to not claiming available relief can apply for a refund if they were eligible at the time of purchase.

Reason for Reclaim First-time buyers are entitled to SDLT relief, which can significantly reduce the amount of tax paid on the purchase of their first home. This relief offers a lower SDLT rate or a complete exemption for properties purchased at or below certain price thresholds. When this relief is not claimed at the time of purchase, buyers may overpay SDLT, but they have the opportunity to apply for a refund from HM Revenue and Customs (HMRC).

Circumstances Leading to Incorrect Assessment The primary reason for not claiming first-time buyer relief often stems from a lack of awareness or understanding of the relief available. Buyers may not be informed about their eligibility for the relief or how to claim it during the property purchase process. Additionally, complexities in the property transaction or incorrect advice from professionals involved in the sale can lead to an oversight in claiming the relief.

Argument for Reclaim The argument for reclaiming overpaid SDLT due to unclaimed first-time buyer relief is based on the eligibility criteria being met at the time of purchase. If the buyer was purchasing their first property and the purchase price was below the specified threshold for the relief, they are entitled to either a reduced rate or exemption from SDLT. The reclaim process involves submitting a claim to HMRC with evidence that the buyer met the eligibility criteria for first-time buyer relief at the time of the transaction. Successful reclaims can lead to a significant refund, providing financial relief to the buyer and rectifying the oversight of not claiming the relief initially.

Charitable Status Overlooked

(Overview: Process of Reclaiming SDLT>Other Reasons For Reclaims)

➤ Charities can reclaim overpaid SDLT if reliefs weren’t claimed during purchase, by proving their charitable status and the property’s use for charitable purposes.

Reason for Reclaim Properties purchased by charities are eligible for significant SDLT reliefs or even full exemption if the property will be used for charitable purposes. If a charity purchases property without claiming these reliefs, it may unnecessarily pay SDLT, thus providing a valid reason for a reclaim.

Circumstances Leading to Incorrect Assessment The oversight can occur due to a lack of knowledge about the available reliefs, misunderstandings regarding the eligibility criteria, or the complexity of the transaction. Sometimes, the charitable purpose of the property use is not immediately clear or documented in a way that satisfies HMRC’s requirements at the time of purchase.

Argument for Reclaim The basis for reclaiming overpaid SDLT by charities revolves around proving the charitable status of the organisation at the time of the property purchase and demonstrating that the property’s use aligns with the organisation’s charitable purposes. This argument is strengthened by clarifying the nature of the charity’s work, the role of the purchased property in supporting this work, and any documentation that evidentially supports the claim for relief or exemption.

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Lease Extension or Variation

(Overview: Process of Reclaiming SDLT>Other Reasons For Reclaims)

➤ Overpaid SDLT can be reclaimed when errors occur in calculating tax on lease extensions or variations, involving detailed recalculations and evidence submission to HMRC.

Reason for Reclaim When extending a lease or varying its terms, the transaction may trigger a Stamp Duty Land Tax (SDLT) liability. Incorrect calculation of this liability, whether due to misinterpretation of the lease terms or miscalculation of the premium and rent, can result in overpayment. If the extension significantly increases the lease’s value or the variation changes the lease’s financial obligations, SDLT recalculations may reveal that too much tax was paid.

Circumstances Leading to Incorrect Assessment The assessment of SDLT on lease extensions or variations can be complex, involving calculations based on the present value of future rent payments and any additional consideration paid for the extension or variation. Misunderstandings or errors can arise from:

  • Misinterpreting the impact of the lease extension or variation on the property’s market value.
  • Incorrectly calculating the net present value (NPV) of the remaining rent over the term of the lease.
  • Failing to apply the correct SDLT rates or thresholds.
  • Overlooking reliefs or exemptions that could apply to the transaction.

Argument for Reclaim The argument for reclaiming overpaid SDLT in the context of lease extensions or variations hinges on demonstrating that the initial SDLT liability was calculated based on an incorrect understanding or application of the tax rules. This can involve:

  • Providing a detailed analysis of the lease extension or variation terms and how they should have been treated for SDLT purposes.
  • Recalculating the SDLT based on the correct interpretation of the law and the factual circumstances of the lease agreement.
  • Highlighting any applicable reliefs or exemptions that were not considered at the time of the transaction.
  • Submitting evidence to HMRC to support the claim for a refund, including the original lease agreement, the terms of the extension or variation, and the recalculated SDLT liability.

Successfully arguing for a reclaim requires a thorough understanding of SDLT legislation, meticulous calculation of the tax liability, and clear communication with HMRC. In many cases, seeking professional advice can significantly enhance the likelihood of a successful reclaim.

15% Rate of SDLT 

(Overview: Process of Reclaiming SDLT>Other Reasons For Reclaims)

➤ Corporations that overpay SDLT at the 15% rate can reclaim it by proving their property purchases serve legitimate purposes like rentals, development, trading, or charitable use.

Note: see section ‘15% High SDLT Rate for Corporate-Owned Residential Properties’ for detailed information on this topic.

Reason for Reclaim This relief is designed to exempt certain transactions from the 15% rate of Stamp Duty Land Tax (SDLT) that typically applies to corporate bodies (e.g., companies, corporate firms) purchasing residential properties over a certain value threshold. The intention is to mitigate the tax burden on entities acquiring properties for purposes such as rental, development, trading, or charitable use, rather than for tax avoidance.

Circumstances Leading to Incorrect Assessment The 15% SDLT rate targets “non-natural persons” buying high-value residential properties to curb tax avoidance through property holding structures. However, this broad application can inadvertently penalise entities involved in activities beneficial to the housing market and broader society. Misunderstandings about eligibility for relief or unawareness of the relief itself often lead to entities paying the higher rate unnecessarily.

Arguments for Reclaim Entities engaged in providing rental housing, property development, trading, or operating for charitable purposes play an important role in supporting housing availability, urban development, and social welfare. The relief from the 15% SDLT rate acknowledges the value of these activities by offering a tax exemption or reduction, encouraging continued investment in these vital areas without the deterrent of an excessive tax rate. To reclaim, entities must demonstrate that their property acquisitions align with the intended beneficial purposes, ensuring they are not unjustly subject to the higher tax rate.

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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.