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stamp duty question (tricky!)
cliftyhanger - 16/4/18 at 07:51 AM

My kids jointly own a rental property. Neither have ever lived in it, it was bought let out and has stayed that way.
One is wanting to buy her own place to actually live in.

We know she will not get the first time buyers thingy. However, we are unsure about the 3% surcharge on 2nd homes or BTL properties.
We are hoping she won't have to pay that bit...

Any experts out there? It will make a significant difference to what she can afford.

Ta.


MDR1987 - 16/4/18 at 11:48 AM

Hi - sorry but the second purchase would attract H/R SDLT so an extra 3% on each band

the test is, at the end of the day will your daughter

a) own two or more properties (the answer being Yes)

b) have replaced her main residence (the answer being No)

Matt


russbost - 16/4/18 at 02:16 PM

I've just asked the exact same Q of my solicitor on behalf of my daughter, the above answer is basically correct - HOWEVER if her share in the rental property is worth less than 40k then she escapes the additional 3%

I have no idea if she can legitimately sell her part of the property (or reduce her holding to below 40k) whilst purchasing her main residence & then repurchase it afterwards, even if legal that may not be cost effective or sensible

You need to talk to a solicitor rather than us numpties!

The annoying thing about it is that, had she already purchased a main residence then she can move without paying the additional tax - I suspect this is a typical example of government legislation where they haven't actually thought thro' exactly who it will affect, as your daughter is effectively a first time buyer (of her main residence) but won't be treated as such for stamp duty


ravingfool - 16/4/18 at 04:24 PM

I don't know, I think this is the purpose of the legislation! Whether you agree with it or not is a separate matter but the intention is to reduce the appeal of BTL as an investment to all people. The allowance for replacement of your main residence is a gimme to keep as many landed people as sweet as possible at the same time!

Deeply frustrating that this choice of approach penalises new entrants to the market much more than established investors any size of portfolio who have benefited from very generous tax position previously.

A bit galling to get onto the property market at a time when I just missed out on all the help to buy incentives that came in shortly after and now am hamstrung on further investments. You just have to do the best you can in the prevailing conditions though.

OP's child will have to weigh up cost/benefit of retaining the interest in the investment property. If the new purchase is at a relatively low cost then probably best to suck it up and pay the extra and hold onto the investment as well as under current regime any future replacement of the main residence' wouldn't be subject to the extra SDLT.

N.B. could be some ways to minimise tax depending on the detailed financial circumstances involved in both current investment and new purchase. A financial adviser could help (I'm not one). If the investment is subject to a mortgage though you don't have as many possibilities.

[Edited on 16/4/18 by ravingfool]


cliftyhanger - 16/4/18 at 04:36 PM

Having done some more digging with the above info, it does indeed seem that buying a main residence does indeed attract the 3% surcharge, wheras replacing it doesn't. Seems a bit unfair.
I can understand the idea behind the surcharge, but really it should not be applied to main residence. But letting people (Jeremy Hunt! amongst others) buy via a limited company gets round the issue. THAT does not feel right, small investors penalised, bigger ones not.

Looks like she will be taking a hit Although she could buy a really cheap house for 40k, have that as her main residence, then sell it on to avoid teh surcharge....but a lot of effort.


bozla - 16/4/18 at 11:03 PM

I don't think buying through a limited company allows you to avoid sdlt. It allows you to pay 20% tax if the extra income pushes you into the higher tax brackets.


russbost - 17/4/18 at 07:07 AM

"Looks like she will be taking a hit Although she could buy a really cheap house for 40k, have that as her main residence, then sell it on to avoid teh surcharge....but a lot of effort."

It's the rental property she'd have to have less than 40k invested in, that figure came direct from my solicitor. If she buys a property below the stamp duty threshold (125k?) then none of the above apply.

Depending on the sort of amounts you could be looking at that might well be worth it, particularly if she can buy something relatively cheaply needing modernisation & take a capital gains free bonus on it a year or so later as no tax due on main residence?