According to the latest figures from HMRC, stamp duty rules designed to clamp down on buy-to-let landlords have landed ordinary homebuyers with unexpected tax bills totalling over £160m which have then had to be refunded.
Please read this to the end. Or skim it!
Higher rates of stamp duty land tax (SDLT) were introduced in April 2016 for those purchasing properties in addition to their main residence. The higher rates are three percentage points above current SDLT rates.
While the tax was introduced to cool down the buy-to-let market, there is potential for people who aim to sell their current main residence and purchase a new one to fall foul of the tax. For instance if someone purchasing a new property found that the sale of the home they wish to leave has fallen through they would find themselves having to pay the higher rates of tax because they effectively own two properties.
The size of the bills received can be considerable. Someone purchasing an average priced property (£320,168) in the South East could find themselves having to pay £15,613 in higher rate SDLT when they were expecting a stamp duty bill of £6,008. Similarly someone purchasing a property in North East England (£130,000) could find themselves facing higher rate SDLT of approx. £4,000 when they were only expecting to pay around £100.
Rather than charge people thousands of pounds and then expect them to claim a refund when their house sale eventually goes through, Royal London believes that the extra tax should only be payable if people are genuinely multiple-property owners. For example, if two properties are still owned a year after the transaction, a second home stamp duty charge could be levied.
Helen Morrissey, personal finance specialist at Royal London said: “HMRC’s approach to higher rate second home stamp duty risks causing severe financial hardship for home buyers. House sales can fall through for all kinds of reasons and the last thing families need is to receive a bill totalling thousands of pounds because they have inadvertently found themselves owning two properties for a short space of time. Our analysis showed that someone buying an average priced property in London could find themselves paying a bill totalling £28,000 when they were expecting to pay approximately £14,000. In the North West it can add up to more than £5,000 when you might have expected to pay only a few hundred pounds. The fact you can get a refund at some point in the future is cold comfort to having to find the money to pay the bill – how many people have ready access to such sums?
We need a more common sense approach. It would be far better for the higher rate of stamp duty payment to fall due on the first anniversary of the completion of the purchase. By this point any delays in the sale of a home could be resolved meaning home owners won’t have the stress of finding the extra money. There would also be a massive decrease in the number of refunds HMRC would need to pay out.”
See the original article here with thanks to propertyreporter.co.uk.
Personally I have seen the problems that this tax law is causing first hand. We have an elderly couple looking to buy a bungalow at £300,000 through us (hardly robbing a first time buyer of their “first rung” on the property ladder”) while they sell their house. It is the first property in 2 years that has even remotely inspired them to put their house on the market and make that critical “last move” and downsize.
As a result they are “cashing in” retirement investments in order to fund the purchase, at great cost and risk as they will incur costs releasing the money and then have to pay themselves back with the sale of their property. HMRC insists that this must be within 18 months in order to claim back the circa £11,000 in ADDITIONAL stamp duty (SDLT) that they will have to pay in the meantime!
This is an example of another knee-jerk Government policy aimed at bashing the housing market to make headlines that on the surface make it appear that the Government is addressing real issues, with impact. This is not the case.
Another example of this is the impending ban on letting agent’s fees to tenants. Designed to protect would be tenants from prohibitive costs that make moving house almost impossible, (apparently), rather than capping fees to punish the few rouge agents that DO “take the Michael” with the fees that they charge, the Government have decided to BAN all fees to tenants.
On the surface (or headline in the paper) this may seem sensible. But wait, what commitment is there from a tenant before moving into a property? What’s to stop them applying for four different houses and then playing them all off against each other on the day before they were supposed to move in? Well… …agent’s and landlords will ask for rent and deposit on application.
Furthermore, the cost of the pre-tenancy and post tenancy work involved is misunderstood. Why should a landlord’s fee be the only compensation for forwarding mail, collecting post from a property and keeping it for tenants to pick up, helping them with their deposit codes (because they’ve lost them), going above and beyond “Hand-holding” them through the process (if there’s a language barrier for example) and other “unpaid and unseen” work that agents do on behalf of their tenants. Basically with such a lot being wiped off the top line a lot of good will, will go!
I’m not saying that some agents don’t take the Michael with upfront fees, but most don’t. Likewise not all tenants are innocent lambs being led to a financial slaughter by nasty letting agents.