SDLT 3% surcharge: deadline for refund on selling your first home extended

HMRC and the Government have clarified how coronavirus affects the requirement to sell your previous home within 3 years of buying a replacement for it in order to claim a refund of the SDLT 3% surcharge on the replacement.

Where you miss the deadline for selling your first property owing to following government guidance during the COVID-19 pandemic, this would usually qualify as “exceptional circumstances” so that HMRC may still permit the refund.

The relaxation only applies where the refund windows ends on or after 1 January 2020.

The background

Since 2016, individuals have been subject to higher SDLT rates where they purchase a second dwelling (known as the “3% surcharge” or higher rate for additional dwellings (HRAD)).

However, recognising that an individual may buy a replacement home in anticipation of selling their current property (rather than as a buy to let investment), the legislation broadly speaking allows for the 3% surcharge to be refunded where the new property replaces the person’s main home and the previous main home is sold within three years of buying the new home.

There are sometimes “exceptional circumstances” not in the control of the buyer or seller which mean that the previous dwelling cannot be sold within three years. In these cases HMRC can decide to permit a refund notwithstanding the delay.

The changes

HMRC updated its guidance to state that such “exceptional circumstances might include being prevented from selling the property owing to government guidance during the COVID-19 pandemic” and the Government are legislating to make this part of the Finance Bill 2020.

The relaxation applies to refund windows ending on or after 1 January 2020, so only supplemental charges paid on purchases on or after 1 January 2017 will be refundable.

This relaxation would typically apply to those prevented from selling because they followed the Ministry of Housing, Communities and Local Government guidance advising against the marketing of properties from 26 March to 13 May 2020.

However, the decision to grant a refund is still at HMRC’s discretion. HMRC draws a distinction between a sale being prevented by following COVID-19 guidance and a “mere change of intention of any party to the transaction at a late stage, a shortage of funds, or deciding not to sell the property in anticipation of making a loss (for example during a downturn in the market)” – these will not be regarded as exceptional circumstances. Similarly, a refund may not be available if you had delayed marketing your property prior to lockdown.

You must still sell your previous home as soon as possible after the exceptional circumstances no longer apply in order to qualify for the refund. If you think that the refund applies, you will need to write promptly to HMRC with the details – get in touch with our experienced real estate tax team if you need any further assistance.


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