Can I claim back stamp duty if I had two homes due to cladding?
I have had a one bedroom apartment in London since 2014. In 2021 I started a family and we decided to move as the flat was no longer fit for purpose.
My intention was to sell the apartment. However, the development I lived in was deemed to have unsafe revetment and no dates had been set for the remediation work at the time. This made it unsaleable.
When we moved in October 2021, I had to pay the additional 3 percent stamp duty fee because my new home was technically a second home.
Surcharge: if you buy an extra home on top of your main residence, you have to pay a surcharge of 3 percent
From my conversations with HMRC I understand that I have three years from the date I left my property to sell the flat and recover the additional stamp duty.
But I am not sure if I can sell the flat in October 2024. Work to repair the upholstery is finally about to begin, but we haven’t been told when it will be done.
During the telephone conversation with HMRC I expressed my concerns and said that I would like an extension. I was not met with much sympathy and was told that extensions are not allowed.
In this case, I feel pretty hard done by the situation was completely out of my hands. Is there anything that can be done? Via email.
Ed Magnus of This is Money replies: Sorry to hear about your predicament. According to the Home Managers Association, about half a million people live in a home with some form of unsafe upholstery – so you’re probably not alone with this problem.
Under current stamp duty rules, if you do not sell your main residence when purchasing another home, you must pay a stamp duty surcharge on the purchase price of the second home. This is because in the eyes of the tax authorities you now own a second home.
You don’t say how much you paid in additional stamp duty, but it could add up to a significant amount.
For example, if you buy a £300,000 property, you would normally have to pay a £2,500 stamp duty bill. With the surcharge included, it would cost you £11,500 in tax.
A £500,000 property would cost £12,500 without the surcharge included. If included, the tax would set you back £27,500.
| Band | Stamp duty land tax rate | Supplementary rate for landlords / second homes |
|---|---|---|
| New buyers pay 0% up to £425,000, then normal rates apply | ||
| £0 – £250k | 0% | 3% |
| £250,001 – £925k | 5% | 8% |
| £925,001 – £1.5 million | 10% | 13% |
| £1.5m+ | 12% | 15% |
| * No stamp duty is paid on property transactions costing less than £40,000 as these are considered low value and not reported to HMRC | ||
As our reader already knows, you can apply for a stamp duty refund if you sell your previous principal residence within 36 months.
If it takes longer than 36 months to sell your previous main residence, there is an exceptional situation where you may still be able to recover the money.
The delay in the sale must be due to reasons beyond your control. If you can prove that you were unable to sell because of the unsafe upholstery, then that seems like a legitimate reason.
We spoke with HMRC And James Kippinga private client tax partner at chartered accountants MHA MacIntyre Hudson to help our reader clarify the matter.
Tax blow: if you do not sell your main residence when purchasing another home, you must pay a 3% stamp duty surcharge on the purchase price of the second home
James Kipping replies: The reader has until October 2024 to sell his old home and fall within the normal three-year period.
However, if they are unable to sell the old property before then, the reasons may qualify as exceptional circumstances to allow for an extension of the normal three-year period.
HMRC’s guidelines state that ‘exceptional circumstances’ include an individual being unable to sell their property due to government restrictions.
For example, the restrictions imposed during the early Covid-19 lockdown or the measures taken by a government agency to prevent the sale are cited as legitimate reasons.
Exceptional circumstances do not extend to a late change of intent to sell, a shortage of funds, or a decision not to sell, even if the sale would be loss-making due to, for example, a down market.
Responding to a written parliamentary question dated 17 June 2021, the then Chancellor of the Exchequer Jesse Norman stated that being unable to sell a previous main residence due to fire safety issues – for example due to unsafe cladding – could be considered exceptional, but HMRC would in any event be assess its own merits.
HMRC’s guidance was subsequently updated with two examples relating to the presence of external cladding, which required remedial work before a sale could be completed.
If the sellers were not aware of the cladding issues when they bought the property, it may qualify as “unforeseen exceptional circumstances” and they can reclaim the 3 percent surcharge – provided the property is sold as soon as possible after the remediation works.
Hundreds of thousands of homeowners in unsafe flats were unable to sell due to serious safety flaws identified in the aftermath of the Grenfell Tower fire (stock image)
There is no clearance for the transaction to determine if the circumstances are exceptional and unforeseen, so it is not possible to get an extension before the property is sold.
Each case will be judged on its own merits. HMRC states that exceptional circumstances are very rare and are likely to affect large groups of people over the same period.
HMRC is at liberty to determine whether there are exceptional circumstances which would allow the 3 per cent surcharge to be reclaimed.
It states that a taxpayer may only request a refund if he has sold the old home and that the application must clearly state what the special circumstances are, how and why those circumstances prevent him from selling the home and why the circumstances cannot be foreseen goods.
It must also be accompanied by proof that the taxpayer has tried to sell the property as soon as possible after the end of the exceptional circumstances.
An HMRC spokesperson replies: You must have sold your previous principal residence within three years of purchasing the new home to be eligible for a refund, unless special circumstances apply.
You may still be able to apply for a refund if you bought your new home on or after 1 January 2017 and were unable to sell your previous home within 3 years.
In order to receive a refund, the delay in sales must be due to reasons beyond your control.
Fire safety issues are likely to be considered reasons beyond any person’s control.
If the reason has ended, you must sell the previous home in order to apply for the refund.
More information about exceptional circumstances and requesting a refund, can be found here.
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