Help coming for stamp duty reclaims
Sean Randall considers the differences in help given by the UK government and the Scottish government for buyers reclaiming the stamp duty surcharge.
A stamp duty surcharge applies to purchases of UK dwellings by companies and purchases of “additional” UK dwellings by individuals. This is imposed as a flat 4% land and buildings transaction tax (LBTT) in Scotland, and as a flat 3% stamp duty land tax (SDLT) in England and Northern Ireland. In Wales it is imposed as a flat 3% land transactions tax (LTT).
When the surcharge applies
For purchases made by individuals, only the surcharge applies where the buyer owns another dwelling after the completion date of the purchase unless the purchased dwelling is a replacement of their home. This includes homebuyers that fail to sell their old home before they buy.
The purchased dwelling may become a qualifying replacement where the buyer’s old home is sold subsequently. The surcharge is payable initially but can be reclaimed if the disposal is made within a window, ranging from 18 months in Scotland to three years in the rest of the UK.
Frozen property market
In recognition of the impact of COVID-19 on the housing market, the Scottish government and the UK government have introduced, or have committed to introducing, legislation to help homebuyers reclaim the surcharge where they have not been able to sell their old home within the relevant window.
This primarily affects homebuyers in Scotland that completed their purchases from September 2018 and those in the rest of the UK that completed from March 2017. If this reclaim window had not been extended some homebuyers would have lost out on making reclaims due to the lockdown restrictions disrupting sales.
The Scottish government passed the Coronavirus (Scotland) (No.2) Act 2020 to give Scottish homebuyers twice as much time to sell their old home – three years rather 18 months – provided they purchased their new home between 24 September 2018 and 24 March 2020.
The UK government will table an amendment to the Finance Bill 2020 at the report stage to allow homebuyers in the rest of the UK to make reclaims where their old home is sold after three years in “exceptional circumstances”. The change will apply where the three-year window ended on or after 1 January 2020.
“Exceptional circumstances” are likely to refer to reasons outside of the applicant’s control, including the impact of COVID-19 preventing the sale and action taken by a public authority preventing the sale. Whatever the reason, once it has ended, the applicant must sell their old home as soon as practicable to qualify for the refund.
It is interesting to note that the two governments have tackled the same issue with different methods – one effectively has a sunset clause and the other change is permanent. The Welsh government has not announced any change at all. This shows the divergence of the three stamp duties.
Neither government appears to have considered the possibility of the reverse fact pattern: individuals with a buy to let or second home who sold their old main home 18 months or three years ago whose purchase of their new main home has fallen through due to COVID-19.
Unless action is taken by the governments, affected individuals will have to pay the surcharge on their purchase even though their failure to purchase within the window was due to the same reason that prompted the change for reclaims. There is no discernible policy reason for allowing the sale of the old home outside the window but not the purchase of the new home.
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Sean Randall is a partner at Blick Rothenberg, Chairman of the Stamp Taxes Practitioners Group, editor and author of Sergeant & Sims on Stamp Taxes and author of the Law Society's The SDLT Handbook: a Guide for Residential Conveyancers and a former Tax Writer of the Year.