Apply for Refund of Additional 3% Stamp Duty Land Tax (SDLT) Surcharge

The Stamp Duty and Land Tax (SDLT) rules have become increasingly complex over the years. This often results in overpayment of the duty and the buyer could apply to claim a refund from HMRC if they are eligible.

If you have sold a residential property which was previously your main residence and the sale occurred within 3 years of buying a new property which is being used as your main residence, you can usually apply for a refund of 3% additional surcharge paid as SDLT when you purchased the new property.

A. Here are some faqs on refund of 3% SDLT surcharge

1. When can one apply for an SDLT surcharge refund?

The Stamp duty land tax (SDLT) surcharge paid on a property can be claimed for refund where -

• You use/intend to use the property bought as your only or main residence,
• You sell a property within three years beginning with the day after the effective date of transaction of purchase of the new property and
• The property which was used as your only or main residence at any time during the period of three years ending with the effective date of the transaction of purchase of the new property.

All the above must be met..

2.What is the main residence?

If an individual has only one dwelling, then it will be their only or main residence. Where any individual has more than one residence, then all the facts and circumstances are considered to determine which property is the main residence. It cannot be determined solely by reference to the time spent by individuals between the properties. There needs to be a permanence and expectation of continuation to the occupation to establish it as a main residence. More details on what qualifies as a main residence can be found here.

3. What is the timeline to replace the main residence?

The timeline to replace the main residence is within three years beginning with the day after the effective date of the transaction of purchase of the new property.

4. What is the deadline to make a refund claim?

The refund can be applied by amending filed SDLT return at any time within the period of 12 months beginning with the effective date of the subsequent transaction (transaction involving sale of previous main residence) or, if later, the filing date of the return for newly purchased property.

5.What information is required to make a refund claim?

HMRC would require details of the property on which refund is sought, original SDLT form details, purchaser details and vendor details. The application can be made online here.

6. How long does it take to process a refund?

The refund is normally processed within 15 days, unless HMRC requires additional information.

B. Further faqs on technical aspect of higher rate for addition dwelling (or simply 3% SDLT surcharge)

7. What is the 3% SDLT surcharge?

Formally known as ‘Higher rate for Additional Dwelling’, it is additional 3% of SDLT payable on purchase of certain residential properties.

Here is the table showing SDLT rates payable with and without 3% SDLT surcharge:

Example:If Mr A is buying a property for £295,000 and the property is the first residential property ever purchased by Mr A, the SDLT is calculated as follows:

However, if Mr A already owns a residential property, then the SDLT payable on the purchase of Property A would be as follows:

8. When does the 3% SDLT surcharge apply?

The 3% SDLT surcharge applies to an individual on purchase of ‘major interest’ in a single dwelling when following conditions are met:

Condition A - the amount payable for the acquisition of the property is over £40,000.

Condition B - on the effective date of the transaction the purchased dwelling is not subject to a lease upon which the main subject-matter of the transaction is reversionary or is subject to such a lease which has an unexpired term of less than 21 years.

For example, a purchase of a freehold of a building where the lease on flat is more than 21 years would not meet this condition.

Condition C - at the end of day when the relevant property is bought, the purchaser has major interest worth more than £40,000 (or is not reversionary on a lease which has an unexpired term of more than 21 years) in another dwelling.

Condition D - the dwelling being purchased is not a replacement for the only or main resident.

Where the purchase is a single individual, the conditions are checked for that buyer alone.

An interest for any terms absolute or leasehold estate is a ‘major interest’ if the term is more than 7 years on the date of its grant.

9. What if I am buying multiple properties at the same time?

If you buy major interest in two or more dwellings, then higher rate will apply if at least two of the purchased dwelling meet conditions A, B and C:

Condition A - the amount of the chargeable consideration for the transaction attributable on a just and reasonable basis is over £40,000

Condition B on the effective date of the transaction the purchased dwelling is not subject to a lease upon which the main subject-matter of the transaction is reversionary or is subject to such a lease which has an unexpired term of less than 21 years

Condition C- the purchased dwelling is not subsidiary to any of the other purchased dwellings,
Multiple Dwellings Relief could be relevant where more than one dwelling is purchased in a transaction.

10. Does it apply to property being bought by a limited company?

In case of a limited company, Where the buyer is not any individual, the 3% SDLT surcharge applies and the main interest is a dwelling and condition A and B in Q.9 applies.

11. I have no other dwellings and I am buying a dwelling with annex or ‘granny flat’, does it count as two dwellings?

The crucial question here is whether ‘granny flat’ is considered as additional dwelling or not.
HMRC have confirmed on their SDLT manual, SDLTM09755, that where principal dwelling is purchased along with a subsidiary dwelling (could be more than one) and the principal dwelling and the gardens and grounds attributable to that principal dwelling is at least two thirds of the value of the land purchased in the transaction, the purchase would be treated the same as if a single dwelling is purchased.
A subsidiary dwelling is a self-contained dwelling in the same building as or in the grounds of another dwelling (principal dwelling).
The transaction is then checked accordingly to determine whether 3% SDLT surcharge is to be applied.

Multiple Dwellings Relief could be relevant where more than one dwelling is purchased in a transaction.

12. How does it apply if the property is being purchased by more than one individual?

Where there are more than one individual buying the property, the conditions are applied for everyone. If the conditions are met for any one of the buyers, the transaction is subjected to 3% SDLT surcharge.

Consequently, if husband and wife are buying a new property and wife already owns interest on a residential dwelling, 3% SDLT surcharge will apply for the transactions.

However, there are exemptions where spouses and civil partners are buying from one another (see below).

13 Does 3% SDLT surcharge apply if I am purchasing interest from my spouse/civil partner?

If you are purchasing interest in a property from your spouse/civil partner who you are living together with at the effective date of the transaction, then 3% SDLT surcharge will not apply if there is only one purchaser and a vendor.

Where there are two purchasers and one of them is also the vendor, that person is not treated as being a purchaser for this purpose; similarly, where there are two vendors, one of whom is also the purchaser, that person is not treated as being a vendor.

14. What if I am a partner in a partnership that holds interest in a dwelling and am buying a dwelling on my own outside the partnership?

Where a partner of a partnership is purchasing an interest in a dwelling which is not being purchased for partnership purposes, then major interest in dwelling held by the partner in the partnership is ignored. This applies only if the dwelling held by the partnership is for the purposes of the Partnership’s trade.

A property letting business or any business exploiting land for rent carried on be partnership is NOT a trade.

15. What counts as dwellings?

A building or a part of a building counts as a dwelling if it is used or is suitable for use as a single dwelling, or it is in the process of being constructed or adapted for such use.

Dwelling includes garden or grounds occupied or enjoyed with a dwelling, and land that subsists, or is to subsist, for the benefit of a dwelling.

Off-plan purchases are counted as a dwelling where the exchanged contract has already been substantially performed but the construction or adaptation of the building has not yet begun.

Hospital, Prison, hotel, hall of residence for students in further or higher education, other institutions providing residential accommodation for children, care homes, residential accommodation for school pupils and for members of the armed forces etc. are NOT counted as dwellings.

16. Does it apply to mixed use properties?

Mixed use properties are not considered as residential properties. Therefore, there are no dwellings for SDLT purposes. Hence, the 3% SDLT surcharge does not apply.

Mixed use properties are properties which have residential and commercial units. A property with a garage on the ground floor and a residential flat on top is a mixed-use property.

However, if you are buying a new residential property but already have interest in a mixed used building which has a residential unit, the residential unit would be considered as interest in a dwelling dealing with application of 3% SDLT surcharge.

17. Does 3% SDLT surcharge apply to lease extension?

Extension of a lease is a chargeable transaction for SDLT purpose. In order to determine the amount of tax chargeable in respect of the extension of lease, it is important to consider whether higher rates apply to this transaction. So, the same conditions as Q.8 above are applied to determine where 3% SDLT surcharge applies.

Therefore, if you have interest in more than one dwelling at the time of lease extension then it is likely that the lease extension on the main residence could be subjected to 3% SDLT surcharge.

18. Does it apply to inherited property or property acquired through gift?

Inherited dwellings which are jointly owned with other person/s does not count for interest in residential property for the first three years where the share in the interest does not exceed 50%.

But if at any time during that period of three years the person becomes the only individual beneficially entitled to the whole of the interest or if interest exceeds 50%, the person is treated as having the major interest in the dwelling.

19. How does it apply to foreign buyers or what is the implication if I have any dwelling outside the UK?

The dwelling outside the UK also counts as an additional dwelling to check if the conditions for the application of 3% SDLT surcharge applies. Therefore, if you have a property outside the UK and you are buying a property in the UK for the first time, a 3% SDLT surcharge will be payable.

20. What is the interaction of the 3% SDLT surcharge with divorce, dissolution or civil partnership etc.

Where a property adjustment order had been made in respect of the interest for the benefit of another person (‘B‘) and the dwelling in question is not the person’s (‘A’) only or main residence but is that of the B, then for the purposes of 3% SDLT surcharge, A is treated as not having the interest in the dwelling.

21. What is the situation if I am a Trustee or a Beneficiary of a Trust which holds dwelling /s.

Where a purchaser is acting as trustee in a settlement, and under the terms of settlement a beneficiary will be entitled to occupy the dwelling or income earned from the dwelling, or the purchaser is simply acting as a trustee of a bare trust, the beneficiary of the settlement of the bare trust is treated as a purchaser. Moreover, if the dwelling is disposed of, the beneficiary is treated as having disposed of it. However, if the beneficiary is a child, then the parents of the child (and, if the parents are not married to one another, the spouse or civil partners, if any, of those parents) are treated as the owners of the dwelling unless the trustee are so appointed and are acting pursuant to an order made under section 16 of the Mental Capacity Act 2005, section 113 of Mental Capacity Act 2016 or an equivalent appointment under the law of a country or territory outside England, Wales and Northern Ireland.

If you need assistance with filing a claim for SDLT refund or you think there are grounds for claiming the stamp duty refund, then please book a free consultation with us.

This article is intended for general information purposes only and does not constitute legal or professional advice. Independent advice should be sought before proceeding with any transaction.

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This article is based on law and HMRC practice applicable on the date published.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.