Stamp duty: are you entitled to a tax refund worth thousands?

There are plenty of reasons why homebuyers may be entitled to a stamp duty refund, but it’s important to only claim if you’re eligible for a refund (and beware the claims management companies)

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(Image credit: Getty images)

Stamp duty is just one of a host of additional costs that need to be considered when purchasing a property.

For most people, it’s the biggest extra expense when buying a home, and the bill can run into thousands of pounds.

Yet there are situations when you may have overpaid on stamp duty, and so be entitled to a refund.

When do you pay stamp duty?

Stamp duty is a tax that you have to pay the government when buying certain things. 

The best known is when buying a property; its full name is Stamp Duty Land Tax.

The amount you have to pay is determined by the purchase price of the property. The tax rates work on a tier basis, and you pay tax on the proportion of the price that falls within a certain band.

Swipe to scroll horizontally
Purchase priceStamp duty rate
Up to £250,000Zero
From £250,001 to £925,0005%
From £925,001 to £1.5m10%
Above £1.5m12%

So for example, if you buy a property for £400,000, you pay 0% on the first £250,000, and then 5% on the remaining £150,000, meaning a tax bill of £7,500.

However, if you are purchasing a second home or investment property, then you incur a 3% surcharge. So in our example above, that would mean paying 3% on the first £250,000 and then 8% on the remainder. This works out at a total tax bill of £19,500.

You may also need to pay stamp duty when purchasing shares, whether on a stock transfer form or through a paperless purchase. In these instances, the tax is 0.5% of the transaction. 

Could I be due a stamp duty refund?

There are some occasions when a property buyer may have paid too much stamp duty so could be in line for a refund.

For example, let’s say you are trying to buy a new home for your family, but are struggling to sell your existing property. If you purchase that new home, it counts as a second property, and so is subject to the 3% surcharge.

However, if you then sell your original residence some months later, then you can claim a refund on that surcharge, so you would only pay the tax due for a regular residential purchase.

Similarly, you might be in the process of getting a divorce, and so opt to purchase a new home before the previous family home is sold. You will again incur the higher stamp duty rate, but could qualify for a refund.

Alternatively, you might purchase a property that you intend to use as an investment ‒ perhaps a holiday home by the coast ‒ but then have a change of heart and decide you wish for that to be your main residence.

In these instances, you will be eligible for a refund if you sell what was the original, main home within three years of having paid the stamp duty surcharge.

Importantly, there is a time limit to be aware of ‒ you’ll need to put in your claim for a refund within 12 months of that property being sold.

There are other reasons why homeowners may have overpaid stamp duty, beyond a change in circumstances around a second home. 

For example, a change in the rules a couple of years ago meant that a property with a separate annex ‒ perhaps for an elderly relative to live in ‒ means these homes are now classed as a single property, rather than two separate properties.

As a result, you may have overpaid stamp duty when purchasing one.

There is also a potential issue around whether the property you have bought is classed as fit for habitation immediately. There was a case taken to tribunal back in 2019 after buy-to-let investors purchased a derelict property, with the intention of demolishing it and replacing it with a new property that could be let out. The tribunal found that because of its condition when it was bought, the second home surcharge should not apply.

Warnings around stamp duty “ambulance chasers”

There have been warnings that claims management firms are starting to target stamp duty as a new area in which to encourage people to try to claim a refund.

Claims management firms help people put forward a claim for some sort of financial refund. In previous years they were particularly active in pushing claims for mis-sold payment protection insurance (PPI), for example, while they have also been pinpointed as a reason for an increase in complaints around packaged current accounts.

They don’t do this out of the goodness of their hearts, however, since these legal firms will take a cut of any money that is refunded to you in the event of a successful claim.

Last year the government said it had seen a spike in “spurious” stamp duty refund claims from new homeowners, blaming this increase on “rogue tax repayment agents” cold-calling property buyers and talking them into making a claim.

Kundan Bhaduri, a portfolio landlord, said he is contacted by claims management firms regularly, encouraging him to make a claim for a stamp duty refund.

“They claim to get unsuspecting home buyers refunds on stamp duty for basic defects in their properties such as damp or mould or unmodernised houses. These cases are way outside of the HMRC judgement and do not warrant a claim for a stamp duty refund.

“Since HMRC operates on a 'refund now, investigate later' policy, these companies will often get a hefty share of the claim and then leave their clients open to investigations and penalties later on.”

That latter point is really important to bear in mind. If HMRC pays a refund initially, and then after investigation determines you were not entitled to that money, it will cost you more overall since you will be charged interest on the sum. There may be penalties imposed as well.

Add that to the fee taken by the claims management firm, and the cost of a claim could be significant.

How to claim a stamp duty refund

You can put in a claim for a stamp duty refund, if you believe you have overpaid, through the Government Gateway website. There is no requirement to use a claims firm to help with your case. You can get advice from HMRC itself around how likely you are to be entitled to a refund. The HMRC helpline (0300 200 3510) is open Monday to Friday 8:30am to 5pm.

However, if you want some support and genuinely believe you have a case, then it’s important you work with a reputable legal firm. You should check they are regulated by the Solicitors Regulation Authority (SRA)

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John Fitzsimons
Contributing editor

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.