Stamp Duty Relief
Are you buying, or did you buy a house with 2 kitchens or an annexe?
Did you pay too much stamp duty when you bought a property?
A recent statement by a firm of stamp duty specialists indicated that over 100,000 people may have paid too much stamp duty on their purchase. This includes first time buyers, investment buyers and those that have failed to claim stamp duty relief when buying a home with 2 kitchens – and yes you read this correctly – stamp duty relief is possible if you bought as property with 2 kitchens or an annexe.
Stamp duty: 2 kitchens tax relief – how does this work?
A second kitchen is often the initial signal to begin determining the possibility of paying reduced stamp duty land tax on a purchase. This helps to identify secondary living space within the main property or as is often the case, an annexe. The further criteria is that there must then be a room for sleeping, bathing, and living in, all of which must be self-contained. The meaning of self-contained is slightly subjective; it refers to the requirement for the area identified as being a secondary form of accommodation to be ‘annexed’ and used privately, separate to the rest of the property. This does not require the creation of new walls or the blocking up of doorways, nor does it require the area to have its own utility supplies. It is a reasonably simple test to determine if a person can live independently from the rest of the property and for this there is just the requirement to be able to cook, sleep, bath and live. These factors contribute towards the property qualifying for what is known as multiple dwellings relief.
What is multiple dwellings relief?
Stamp duty multiple dwellings relief is the official naming of the relief and the legislation related to this is full of technical definitions, making it quite complex to understand whether the property qualifies for the relief. The name of the relief itself is misleading and would put most people off even noticing that they may be entitled to claim a reduction in the amount of stamp duty that they should pay. Take the title ‘Multiple Dwellings Relief’ – a cursory glance would create the assumption that the transaction would need to include the purchase of 2 or more properties, to be entitled to the relief. However, as explained in the former paragraph, the legislation allows for relief if one property has secondary living accommodation within the main property or grounds. Often this presents itself as an annexe attached to the main dwelling or a separate building in the grounds, but there are instances where a large property will have undergone some form of conversion prior to the purchase that means the building qualifies as having 2 forms of independent living space within its very own four walls. As is always the case with tax and legislation, the devil is in the detail, but the detail is far from easy to understand and the HMRC website guidance is not always an entire reflection of what is possible. Expert opinion is always recommended but property purchasers should consider that stamp duty is a self-assessment tax, meaning that they are actually in control of calculating the tax due, albeit the solicitor involved in the transaction will usually assume this role.
Is multiple dwellings relief worth claiming and how is it calculated?
Yes! Why would you not claim a reduction in the amount of tax that you have pay when buying a property? Stamp duty is a banded tax meaning that the higher the purchase price, the greater the rate of tax, because of the banding that the price falls within. For example, a purchase of £300,000 falls into the 3rd band, it follows that the first £125,000 has a 0% rate, the next £125,000 is charged at 2% and the final £50,000 is charged at 5%. The normal tax due is £5,000.
Calculating the relief is quite simple; rather than applying the bands to the full purchase price, the purchase price is divided by the number of self-contained areas/annexes/properties being purchased and then the bands are applied. Therefore, in this example of a £300,000 purchase price which included 2 self-contained areas, the tax due is calculated on 2 x £150,000. This means that the first £125,000 of each calculation has a 0% rate and only the remaining £25,000 of each calculation is taxed at 2% (£500 x 2 = £1,000). The two amounts are then combined creating the new lower amount of tax due. The above example reduces tax due from £5,000 to £1,000, a £4,000 saving – so yes, it is worth claiming
Is my company entitled to multiple dwellings relief?
Yes. If the property purchased qualifies as having secondary self-contained accommodation, or if there is an annexe or more than one property being purchased, then a company like a private purchaser is also entitled to the relief. It is further worth noting that if a company buys 6 or more self-contained areas/annexes/properties in one transaction then the whole transaction becomes a commercial transaction, even if the properties being purchase are all residential.
Why didn’t my solicitor identify this when I bought the property?
This is now a huge problem for many solicitors that have not made their clients aware of the availability of the relief. Claims companies are not hot on this and are winning cases going all the way back to when this relief was first introduced by the government in 2011 and is leading to retrospective pay-outs by the solicitor’s insurance companies. The pay-outs are made where law firms involved in purchases have simply failed to point out that the relief exists, not necessarily that it can or should be claimed – just that there is the option to claim it. Many solicitors have missed this and the client wants reimbursing. Unfortunately, the historic position adopted by law firms was that the solicitors did not see the option for stamp duty tax relief as falling within their remit, but clearly, they had a duty of care in the very least to make the purchaser aware.
Can I claim multiple dwellings relief retrospectively?
The best approach is to make sure that you claim the relief on the day of the purchase although HMRC ordinarily allow a purchaser up to 12 months from the date of purchase to resubmit a claim for relief. However, they will not be prompt in making a refund and will create many hurdles or even issue threats if they aren’t provided with the correct information. It starts to become quite a scary prospect and many people will walk away at this point, fearing a penalty for getting it wrong. This is where a claims company could help or if the purchase was within the last 12 months, then the starting point would be to contact the solicitor that helped with the original purchase. They will far prefer to hear from you now than at some point after the 12 months when they will possibly be liable to pay you the relief!
Are there other reliefs available?
Yes, but except for first time buyer relief, most other significant reliefs are only available to limited companies that buy property. The companies do not have to be large companies, just those that are specifically formed to buy and sell property.
Gareth Bertram
Director, TLPI
Gareth has been involved in the property and finance sector for over 20 years. Having successfully run several businesses, he currently focuses his time in helping SME company directors to access old pension funds for use in their business or for investment in property.
https://www.linkedin.com/in/garethbertram
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