Written by Karen Bryan
The 3% Stamp Duty Surcharge, introduced in April 2015, is having unintended consequences. It was meant to be an additional cost for buy-to-let landlords. There were few critics of the surcharge as most people thought that buy-to-let landlords were fair game as a source of additional tax revenue.
However, even if you have no intention of being a landlord, if you buy your new home before selling your current main residence, then you are slapped with this additional 3% Stamp Duty. The surcharge has to be paid upon purchase of the second property.
Buying your new home before you sell your current home could be for different reasons. It could be intentional e.g. you may want to secure your ideal home, not wishing to risk losing it by waiting to sell you current home. Or it could be unintentional e.g. sale of your current home could fall through at the last moment, especially under the English legal system, where neither the buyer or seller is tied in until exchange of contracts.
It’s a real financial burden having to come up with 3% of the value of your new home upfront. Particularly at a time when you have so many other expenses e.g. legal, estate agent and removal fees.
Whatever the reason, if you buy a replacement main residence before selling your current main residence, you have to pay the 3% Stamp Duty Surcharge as you own two homes.
In England, as long as you sell your current main residence within three years of purchasing your next main residence, then you can apply for a refund of the 3% Stamp Duty Surcharge,
In Scotland, you only have 18 months to claim a refund. I assume that the shorter deadline in Scotland is due to the buyer and seller being tied into in an earlier state of the home buying/selling legal process.
You are losing potential growth of the cash (through interest in a savings account, or investment gains) by having to pay upfront for the Stamp Duty Surcharge.
What if you don’t manage to sell you home within the deadline for refunds? I see this as quite possible if you are selling a house in England and buying in Scotland.
In my opinion, the 3% Stamp Duty Surcharge is unfair to people who, for whatever reason, buy their new home before selling their current home. Why should they be caught up in a policy designed to raise additional tax revenue from buy-to-let landlords?