Ordinary buyers hit by extra stamp duty aimed at buy to let landlords, new research shows

As calls increase for the Chancellor to make changes to the property tax paid in the UK when buying a home, a new analysis shows how mainstream buyers have been paying more due to technically owning two homes at once if a sale falls through.

An extra 3% stamp duty was introduced in April 2016 for anyone buying an additional home by the Government in a bid to deter second home buyers and buy to let landlords regarded as competing with first time buyers.

Now an analysis of the latest figures from HMRC figures show that stamp duty rules designed to cool the buy to let market has actually resulted in ordinary home buyers having unexpected tax bills totalling over £160 million which have then had to be refunded.

The problem has arisen for people who aim to sell their current main residence and purchase a new one where the sale has fallen through, according to the report from mutual insurer Royal London. It mean they effectively own two properties and have to pay the higher rate of tax.

It says that the size of the bills received can be considerable. Someone purchasing an average priced property at £320,168 in the South East could find themselves having to pay £15,613 in higher rate stamp duty when they were expecting a stamp duty bill of £6,008.

Similarly someone purchasing a property in North East England at £130,000 could find themselves facing higher rate stamp duty of around £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.

‘HMRC’s approach to higher rate second home stamp duty risks causing severe financial hardship for home buyers,’ said Helen Morrissey, personal finance specialist at Royal London.

‘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,’ she explained.

‘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 as few 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,’ she pointed out.

‘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,’ she added.