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Government grants coronavirus extension to save sellers from stamp duty tax trap

Melissa Lawford
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Homeowners stuck in a property tax trap because of coronavirus have been offered a reprieve by the Government after Telegraph Money highlighted the loophole. 

HMRC has pushed back the deadline for additional stamp duty refunds for house sales that were delayed because of the property market freeze.

The extension will be a particular lifeline for people who had spent time building a new home for themselves before selling their old one.

One couple in West Yorkshire told Telegraph Money they spent three years building their dream house and faced an extra stamp duty bill of £40,000 if they could not sell their old property by June.

The tax trap was inadvertently created by the property market being frozen. In April 2016, the Government introduced an extra 3pc stamp duty surcharge on properties purchased in addition to a main residence. Buyers could apply for a refund of the extra tax they paid while purchasing a second home if they sold their old property within three years, and the new one became their primary home.

This refund model was thrown into chaos when the Government froze the housing market because of lockdown on March 27. Buyers were forced to delay transactions unless they were legally bound to proceed and a new completion date could not be negotiated. 

Now, anyone whose three-year deadline was from January 2020 onwards will be granted an extension if they write to HMRC, outlining a valid reason for how coronavirus delayed the sale.

Extensions will also be granted if a public authority has taken an action that delayed the sale.

Since the market reopened after a seven-week pause on May 13, many sales cannot be picked up where they left off. Buyers are spooked by forecasts of house price falls and are trying to renegotiate. According to a Zoopla survey, 41pc are shelving their plans altogether due to the new uncertainty. 

If a sale has fallen through, it can take several months to find a new buyer and complete a sale. Even those that can still go ahead will face delays as surveyors and valuers grapple with a seven-week backlog of work.

Laura Suter, of investment platform AJ Bell, said: “Considering the extraordinary circumstances at the moment and the unprecedented impact on the housing market, it’s sensible that the Government has given these homeowners some breathing space to sell their homes.”

However, the guidance on what constitutes a valid reason is vague. There are no explicit notes or examples of what the Government will consider a delay caused by coronavirus.

Ms Suter added: “This could leave the door open to confusion about what constitutes a valid reason. Hopefully more clarity will come from the Government on this to help homeowners who don’t have a clear-cut situation.”