George Osborne’s stamp duty charge was implemented in April 2016 in an effort to stop the growth of buy-to-let business.
The 3% surcharge payable by anyone purchasing ‘additional’ property (holiday homes and buy-to-let investments) has resulted in the Government taking more than two months to refund homeowners who need to claim it back.
What’s the problem?
Homeowners buying a new property before selling their previous one have been forced to pay stamp duty up front, with the promise that a refund can be claimed should they sell the former house within three years.
6,800 additional property refunds totalling £80 million were paid during 2016/17, according to Government figures. In the financial year to date (2017/18), a further £105million was paid out; with the average refund worth £27,205.
Let’s take a look at the numbers.
Someone buying a £400,000 house would have to pay £22,000 stamp duty, even if there is only a single day’s gap between buying the new property and selling the previous one.
Compare this to the £10,000 duty payable if both transactions occur on the same day. Delays have become endemic in the system and in an attempt to appease out-of-pocket homeowners, they are paying out 0.5% interest on top of the refund.
Stuck in the past?
HMRC’s Refund Department is based in Birmingham and employs 43 members of staff. The 43 people take 45 days to open a letter, and a further 50 to pay out the refund.
The department is working in decidedly old-fashioned conditions – they don’t accept emails, only letters and faxes. Each letter must be entered manually onto a digital system before processing the refund can even begin.
It’s no wonder then that homeowners hit with the hefty additional surcharge are taking out personal loans to cover the cost. Conveyancing issues often mean that they are unable to buy and sell on the same day, meaning their stamp duty doubles overnight.
Think of the people
Chief Executive of Homeowner’s Alliance Paula Higgins has mixed views on the subject.
She said she stood by the Government’s attempt to curb by-to-let landlords, but expressed discontent at politicians not thinking about the consequences of their actions prior to implementing them.
“It’s all well and good saying these people can claim back the additional charge once their home is sold but they still need to come up with several thousand pounds at a time when money is more than likely tight as it is,” she said.
Higgins mentioned that the surcharge on second homes was “clearly intended to restrict by-to-let,” but that “the unintentional effect of it is that those buyers who can’t sell their current home at the very same time as the sale of the new property goes through end up facing the extra payment too.”
With HMRC’s target of refunding buyers within 15 days remaining unachievable for the time being, the Homeowner’s Alliance offers a potential course of action.
“Rather than impose the fee for all second home buyers and then allow them to sell within three years, don’t impose the surcharge unless the second property has yet to be sold two years after the first sale.”
Surely that’s the way to solve this problem?
Maybe, but it’s getting the Government to listen that’s the most pressing issue.
Labour peer Lord Campbell-Savours brought the issue to the attention of the House of Lords, asking the Government that the policy be re-thought. He stated quite clearly that people are “caught in a trap” when buying and selling.
“If you buy a house, having not sold your existing house, you end up with the house you are purchasing being treated as your second home for stamp duty purposes,” he says, before adding, “there is every evidence that the system is damaging the property market.”
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