How to claim back stamp duty – and find out if you’re owed a refund worth thousands

House prices may be falling right now, but a second home remains a luxury many people want to own – and one which comes with a premium in the form of a higher rate of stamp duty.

Decide to purchase an additional property and you pay a further 3pc to the taxman compared to someone buying a residential property they intend to live in. 

This “additional dwelling” surcharge applies to both buy-to-let properties and holiday homes – though certain types of accommodation are exempt, such as mobile homes, caravans and houseboats.

While this 3pc can add a hefty “extra” to second home purchases, there are (legitimate) ways to recoup what you’ve paid. Here, Telegraph Money explains when you can reclaim some of your stamp duty payment, and how to go about it.

What is the stamp duty surcharge?

The 3pc surcharge is a fee levied for owning more than one property.

This premium was introduced following a rule change in April 2016, when the rates were increased for second homes and buy-to-let purchases. Stamp duty rules apply in England and Northern Ireland. Similar higher rates apply in Scotland and in Wales, under their equivalent devolved taxes.

Nick Mendes from broker, John Charcol, said: “Buy an additional property and you pay stamp duty at the standard rates that normally apply, plus a 3pc surcharge on each band.”

This means, for example, you will pay 8pc (5pc plus 3pc) on the value of a home valued between £250,000 and £925,000. And you will pay 13pc (10pc plus 3pc) on the value between £925,000 and £1.5m. 

Should you be entitled to a refund of the surcharge after buying a property for £500,000, for example, this could mean receiving a £15,000 refund.

Am I entitled to an HMRC stamp duty refund?

If you have previously paid the extra surcharge, you could be due a refund if you decide to sell your main residence. 

Penelope Lang, partner in private client tax at Evelyn Partners, said: “Sometimes, taxpayers have to pay the surcharge as they are buying a replacement main residence, but do not dispose of their interest in their old home until after the purchase. Overlaps can happen for several reasons, such as wishing to do work to the new home before moving in, or in a case of divorce, still having an interest in the former marital home until it is sold.”

While this 3pc surcharge must be paid on purchase, you may be able to apply for a refund if you sell your main residence within a certain timeframe. 

Nicholas Christofi, managing director of Sirius Property Finance, said: “The sale of your primary residence needs to come within three years of the completion of your second home or buy-to-let purchase. As long as this is the case, you should be able to recoup the additional 3pc originally paid in stamp duty.”

Note that the relief under this “three-year rule” only applies where one main residence has been replaced with a new main residence. It does not apply where a let property is sold to fund the new home. 

It may be possible to apply for a refund of the surcharge beyond the three-year rule in cases where you purchased your new home on or after 1 January 2017 and were unable to sell your previous home within three years after this – but only if reasons were outside of your control owing, for example, to the coronavirus pandemic, or the public authority taking action to prevent the sale going through. 

Once the home has been sold, you can apply for the refund by writing to HMRC to explain what happened, and you’ll need to provide the usual information needed for a stamp duty refund. The tax authority will then assess whether you’re eligible to receive money back.

How do I apply for a stamp duty refund?

To claim a refund, you can do this yourself for free directly with HM Revenue and Customs (HMRC) by completing a stamp duty land tax return. 

This can be done online via the Government website, using a Government Gateway user ID and password. You can create these when you use the service.

If you prefer, you can also print off the form and post it to HMRC. 

Be aware that the information needed is fairly extensive, so it’s worth getting it all together before you start the process. 

This includes details of the property you paid the higher rate of stamp duty for (including date of purchase and stamp duty transaction reference number), and also details of the home you’ve sold (including date of sale, address of the property and the buyer’s name). 

In addition, you’ll need to provide details of the amount you’re asking for as a refund, as well as the details of the bank where you want to receive this payment. 

Ms Lang said: “Often it makes sense to ask the solicitor doing your conveyancing to handle this part of the stamp duty administration as well, though this may depend on the fee charged.”

There are also a number of third party firms that offer to make stamp duty refund claims for you – fees can be high, so make sure you understand the charges before going down this route.

How long do I have to claim a stamp duty refund?

You must send your request to HMRC within a year of the sale of your previous main residence, or within 12 months of the filing date of the return relating to the new residence, whichever is later.

When will I receive my refund?

Technically, you should receive your refund in around 15 days if you have provided all the required documentation. 

In reality however, it may take a little longer, according to the experts.

Mr Cristofi said: “HMRC is notorious for delays when returning money owed, and while it could take up to six months, a realistic gauge is around two months.”