The largest mutual life pension and insurance company in the UK has added its voice to growing calls for stamp duty reform.
Royal London says it is making the call because of the risk of “severe financial hardship” being caused by the complexity of the current stamp duty regime.
It says new HMRC figures show that stamp duty rules designed to clamp down on buy-to-let landlords have landed ordinary homebuyers with unexpected tax bills totalling over £160m which have then had to be refunded.
The three per cent stamp duty surcharge was introduced in April 2016 for those purchasing properties in addition to their main residence.
While the tax was introduced to cool down the buy-to-let market, Royal London says there is potential for people who aim to sell their current main residence and purchase a new one to fall foul of the tax.
For instance if someone purchasing a new property found that the sale of the home they wish to leave has fallen through they would find themselves having to pay the higher rates of tax because they effectively own two properties.
The size of the bills received can be considerable. Someone purchasing an average priced property (£320,168) in the South East could find themselves having to pay £15,613 in higher rate Stamp duty when they were expecting a stamp duty bill of £6,008.
Similarly someone purchasing a property in North East England (£130,000) could find themselves facing higher rate of duty of about £4,000.
Rather than charge people thousands of pounds and then expect them to claim a refund when their house sale eventually goes through, Royal London believes that the extra tax should only be payable if people are genuinely multiple-property owners.
For example, if two properties are still owned a year after the transaction, a second home stamp duty charge could be levied.
Helen Morrissey, personal finance specialist at Royal London says: “HMRC’s approach to higher rate second home stamp duty risks causing severe financial hardship for home buyers. House sales can fall through for all kinds of reasons and the last thing families need is to receive a bill totalling thousands of pounds because they have inadvertently found themselves owning two properties for a short space of time.
“Our analysis showed that someone buying an average priced property in London could find themselves paying a bill totalling £28,000 when they were expecting to pay approximately £14,000. In the North West it can add up to more than £5,000 when you might have expected to pay only a few hundred pounds.
“The fact you can get a refund at some point in the future is cold comfort to having to find the money to pay the bill - how many people have ready access to such sums?
“We need a more common sense approach. It would be far better for the higher rate of stamp duty payment to fall due on the first anniversary of the completion of the sale. By this point any delays in the sale of a home could be resolved meaning home owners won’t have the stress of finding the extra money. There would also be a massive decrease in the number of refunds HMRC would need to pay out.”