Main Residence Stamp Duty: How can you reclaim the 3% surcharge?

Dive into the details of Stamp Duty Land Tax (SDLT) and find ways to get your money back.

If you had to pay the extra 3% tax when buying a new main residence, don’t worry.

This complete guide makes understanding main residence stamp duty land tax simple, and demonstrating how you might get that 3% tax returned.

Stamp Duty Threshold

When you buy a home, you usually have to pay Stamp Duty Land Tax (SDLT). This tax:

• Only applies to properties costing more than £250,000.
  
• Can vary based on:
  
  ➤The date you bought the property.
  
  ➤ The price you paid for it.
  
  ➤ If you qualify for certain discounts or exemptions.

To figure out how much extra tax you’ll pay, use an SDLT calculator.

It’s a handy tool that does all the calculations for you, although it might not consider the various individual circumstances that might make you liable for relief.

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Stamp duty on main residence if you own another property

If you’re buying a new home to replace your main home:

• You won’t pay the extra 3% SDLT if you’ve already sold your old main home before buying the new one.
  
• If you haven’t sold your old main home when you buy the new one, you’ll have to pay a higher tax because you own two properties at the same time.
  
• But don’t worry, you can ask for a refund if you sell your old main home within 36 months.

What if it takes more than 36 months to sell your old home?

You might still be able to get the extra 3% SDLT refunded if:

• You bought your new home on or after January 1, 2017.
  
• Something big and out of your control, like government restrictions because of COVID-19 or a public authority blocking the sale, stopped you from selling your old home.
  
• You’ve now sold your old home.

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What is classed as a main residence for stamp duty?

A “main residence” is the place where you spend most of your time every year.

If you live at just one property, that’s your main home. But if you live at more than one place, figuring out which one is your main home can get a bit tricky.

The government has a few questions to help you decide:

• If you’re married or in a partnership, where does your family hang out most of the time?
  
• If you have kids, where do they go to school?
  
• Where are you registered to vote?
  
• Where do you work, and how have you set up your home?
  
• What address do you use for official letters and where are you registered for doctor and dentist appointments?
  
• If you have a car, where is it registered and insured?
  
• Which address do you use for paying council tax?

Your old main home counts as your main home if it’s either where you’re living when you sell it, or if you lived there at any point in the 3 years before buying your new home.

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Do you pay stamp duty on main residence?

If you buy a new main home and there’s a delay in selling your old one, you might end up owning two homes at the same time.

This means you might have to pay higher tax rates.

But, there’s good news!

If you sell your old main home within three years of buying your new one, you might be able to get some of that extra tax money back.

Here’s how:

• You can ask for a refund for the extra tax if you sell your old main home within three years.
  
• You need to make this refund request within 12 months of selling your old home, or within 12 months of the due date of your SDLT tax return, whichever is later.

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Save on the 3% surcharge SDLT

You can skip the extra 3% tax on your new home if you’re buying it to replace your old main home.

This means you could save a lot of money on taxes if you meet certain rules. Here’s what you need to know:

• You owned a home before, and it was your main home (you lived there).
  
• You’ve sold your old home when you buy the new one.
  
• You’re buying the new property to be your new main home (you’re planning to live there).

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What is the 3 year rule for SDLT main residence?

From November 26, 2018, a new 3-year rule started to apply. Here’s how it works:

• If you buy your next main home within three years of selling your old main home, you can avoid the extra 3% tax.
  
• Your old home must have been your main home (where you lived) at some point in the three years before you bought your new home.

But, if you bought your new home on or before November 26, 2018, this 3-year rule didn’t apply.

So, even if you sold your main home many years ago, you wouldn’t have had to pay the extra 3% tax if you completed your purchase by November 26, 2018.

The rules can be complicated, especially for married couples or civil partners.

But this 3-year rule can help you avoid the extra 3% tax when you’re replacing your main home and save you a lot of money.

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SDLT replacing main residence examples

Scenario 1: A Married Couple Moving Back from Abroad

A married couple moved away from England for work six years ago. They sold their main home before they left and lived in employer-provided housing abroad. The couple moved back to England in 2018 and bought a new home in October 2018. They own other properties and had to pay the extra 3% tax. Can they get their money back?

Early tax guidelines state that they couldn’t avoid the 3% tax because they sold their old home more than three years before buying their new one. But, purchases made by November 26, 2018, don’t follow the 3-year rule. So, since the couple bought their new home before this date intending it to be their main home, they could have avoided the extra tax. The couple can ask HMRC for a refund of the extra tax they’ve paid.

Scenario 2: Keeping the Old Home for a Bit

Steve kept his old main home (he lived in it for a long time) but has rented it out for the past seven years while living elsewhere for work. He’s about to buy a new home and move in, but wants to keep the old home until the current tenant leaves in about a year. Does he have to pay the extra tax now and can he get it back if he sells the old home within three years of buying the new one?

The answer is yes, he has to pay the extra tax. But no, he won’t be able to get it back. The 3-year rule is a problem here. Steve hasn’t lived in the old home at any point in the three years before buying the new home. So, he won’t be able to get the extra tax back, even if he was to sell the old home within three years of buying the new one.

If you’re thinking of buying additional property, or you’ve bought a new main home and believe you’ve been overcharged on tax, we can help you understand the rules and claim back any extra tax you’ve paid.

If you need further help, contact us here and we’ll get back to you!