By Louise Misiewicz
Article relevant to the tax year 2017/18
Have you overpaid Stamp Duty Land Tax (SDLT) when buying a property?
It is astonishing to see how many conveyance solicitors up and down the country are getting the SDLT calculations incorrectly, leading to overpaid stamp duty.
I recently had a phone call with a new client who wished to talk about tax structures for their portfolio. We got onto the subject of a newly-purchased property that was a flat above a shop.
Most property tax specialists and solicitors know that this is a mixed-use property and therefore non-residential SDLT charges apply, as I have shown in a previous article here.
Sadly, the solicitor in question was clearly not well-versed in the SDLT tax legislation, and charged this particular client the residential rates. Let’s see what the difference was:
- £300,000 Purchase price
- £9,000 SDLT normal charge plus
- £5,000 3% SDLT surcharge*
- £14,000 SDLT actually paid
*Anyone with a property in their own name will now be subject to a 3% SDLT surcharge, as I explained in a previous article.
However, as we will now see from the non-residential SDLT charge, the following should have applied:
- £300,000 Purchase price
- £4,500 SDLT that should have been charged
Have you overpaid stamp duty and can you claim stamp duty back?
As you can see from the above this client was informed by his solicitor to overpay SDLT by £9,500.
Overpaid stamp duty? Is it time that you checked out the amounts of SDLT that you’ve paid recently?
It is possible to claim back the overpayment of SDLT, but why go through the arduous process and just get it right first time instead.
Our team of property tax experts are on hand to advise our clients on ways to minimise their SDLT charges when buying a property investment.
Download our tax-efficient property investment guide for 2018 here
Have you overpaid VAT who buying or refurbishing a property?
The same client also purchased an office for the price of £250,000. The seller charged him 20% VAT on top of the purchase price. The VAT charge was £50,000. Therefore, the total acquisition price was £300,000.
SDLT is a double charge when it comes to property, as it’s based on the property price plus the VAT charged. In this instance, the SDLT was £4,500.
However, after talking with me, the property investor raised that he had made a mistake. His intention was always to convert the office into a residential block of flats. As such, he could have asked the seller to remove the VAT from the purchase price by using a simple 1614D from as I explained in an article here.
If he used this form before purchase he would have saved £50,000 of VAT and the additional SDLT. This is the cost of not using a a property tax specialist.
The double tax charge on errors made to SDLT and VAT
In addition to the overpayment of £50,000 VAT, the property investor in question also overpaid SDLT.
Without the £50,000 VAT charge, the SDLT would have been payable on the £250,000 price tag. This would have reduced his SDLT charge by £2,500 meaning that he just paid £2,000.
As you can see, it’s easy to make a lot of tax mistakes even before you even get the keys to a property. In this above instance, the investor overpaid £50,000 VAT and £2,500 SDLT.
VAT when refurbishing a property
A lot of property investors will not think about VAT when refurbishing their properties.
If you spend £20,000 on a refurbishment project and you pay the standard price of 20% VAT, the VAT charge will be £4,000.
As I examined in one of my previous articles the rate of VAT that can be charged on refurbishment may be reduced from 20% to 5% on certain types of properties: conversion from commercial into residential, changing the number of units, refurbishment of properties that have been left empty for more than two years, creating a HMO.
In the above example, the property investor did not think about this VAT rate reduction and overpaid to the tune of £2,000. Some of the expenses were for professional services such as architects and those remain at the 20% standard rate of VAT.
In the end, we got back to the subject at hand in regards to his tax position, and I had a lot of work to get through as you can imagine.
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