2nd Property, Advice Needed

joshj33

Hi There,

I currently have a residential mortgage on a 2 bed flat which I lived in for 4 years.

Me and my girlfriend decided to buy a new build house together which is in the process of being build but won't be ready until November 2017. Back last November I moved out of my flat and rent it to a friend. I moved back in with parents to allow me to save up enough money for a deposit for our new build house as I'm not a first time buyer but my girlfriend is.

The problem I have is I already have a mortgage on my flat and now we are going to buy this new home it's classed as a second property for me so stamp duty would be an extra £7,500 and I would have to change my flat to a buy to let mortgage which wouldn't make it as attractive to keep.

Is there any way I can avoid paying the extra stamp duty on the second property as me and my girlfriend will both own it 50/50? We already have to put down a minimum of 20% deposit as it's my second home which is a fair chunk but could there be a way around the extra 3%.

The flat earns me 8% yield per annum and the tenant wants to sign a 5 year contract so I really don't want to sell it unless I had to or could I transfer to a family member? I'm 25 years old and it's hard enough saving as it is never mind getting stung another 3%.

Any advice or opinions on my situation are welcome, I would be more than greatful to hear from you.

Thanks

Josh

marliepanda

What's with the influx of people wanting to avoid tax today?!

Just pay what you owe. The tax is there to discourage people from owning multiple property to allow other young twenty somethings who are struggling to save (like you...) being priced out of the market by people buying property to rent (like you)

joshj33

Thanks for the pointless reply.

I work hard for what I have and I'm not about to give it all away because you say so.

I'm sure there are people out there with some decent advice for me.

All the best!

booksurr

no you cannot avoid the higher rate SDLT because it was brought in to address the exact circumstances you are looking to avoid.

you own a property, you are buying a second property. at the end of the day you will have gone from 1 to 2 owned properties QED you have purchased an additional property upon which the additional rate SDLT is due

presumably your girlfriend cannot afford to buy the place on her own so you must be party to the mortgage (and hence be on the deeds of the new place). If she could buy in her sole name then obviously higher rate SDLT would not be due as she does not already own a property, however the minute you appear on the deeds whilst still owning the old place you would be hit with the higher rate SDLT

you could "transfer" the flat to a family member. That is technically a disposal and would trigger your own CGT calculation (though unlikely you'd actually have to pay any tax). Crucially though you would then not be entitled to any of the rent since you no longer have a legal interest in the property. You cannot have your cake and eat it. Your family member would be liable for income tax on the rental profit, not you, and your family member would also be liable for CGT when it is finally sold. Patently there is an outstanding mortgage on the flat so a "transfer" is meaningless anyway since you cannot transfer your mortgage, you repay it in full, sell/give the property to whoever you like, and that person may or may not need to take out a mortgage on it in their own name so you then get the cash you need to repay your loan in your name.

BTW - if the tenants want to sign for 5 years have you checked with your lender if they will allow that? You openly admit it is currently being let on a residential mortgage - presumably being a law abiding person your lender is aware of that and has given you "consent to let". What are the terms of that consent - typically it will only be available for a set time and after that you may be forced to convert to the BTL mortgage anyway. Tread carefully and make sure you do your research - eg. a 5 year tenancy agreement has to be issued as a deed !

AnotherJoe

joshj33 wrote: »

Thanks for the pointless reply.

I work hard for what I have and I'm not about to give it all away because you say so.

I'm sure there are people out there with some decent advice for me.

All the best!

How about "because its the law" then ?

You asked "is there a way I can avoid paying" and the answer is "not legally" so pay it because its due, so thats the advice you'll get from everyone responding.

What you are asking is no different at all to asking how to evade income tax through some fancy scheme.

And do i take it from what you wrote that you are already breaking the terms of your mortgage by renting out your flat without informing/getting permission from the mortgage company?

bouicca21

I have over the years filled in many tax forms. There's never been an option to tick working hard to get an extra allowance.

theartfullodger

joshj33 wrote: »

Thanks for the pointless reply.

I work hard for what I have and I'm not about to give it all away because you say so.

I'm sure there are people out there with some decent advice for me.

All the best!

"Decent" advice? Yeah: Do the "decent", patriotic thing & pay tax due cheerfully & promptly!

buglawton

There's a chance that if you sell your flat within a year of buying the house, you could claim the extra stamp duty back. But the joint ownership aspect of the upcoming house complicates that. There are a lot of people affected by the 'BTL tax' and complex personal circumstances means some fall on one or the other side of this Occam's razor.

But it sounds like you've decided to become a BTL type landlord long term. You'd be mad to offer your tenant anything other than a standard AST (rolling contract, tenant gets 2 months notice). A non-AST 5 year contract can practically prevent you from selling the flat in future, or force you to sell it cheap to a cash buyer, when you need to sell.

davidmcn

joshj33 wrote: »

could I transfer to a family member?

You can sell it to anyone. It's the only reliable and straightforward way of avoiding the additional property surcharge. As already mentioned, you might qualify for the concession of it having been your main dwelling, which would allow you to reclaim the tax if you sell within 3 years.

AdrianC

joshj33 wrote: »

I currently have a residential mortgage on a 2 bed flat which I lived in for 4 years.
Back last November I moved out of my flat and rent it to a friend.

I would have to change my flat to a buy to let mortgage which wouldn't make it as attractive to keep.

Presumably you currently have consent to let - so can you not continue with your existing mortgage plus CtL?

Is there any way I can avoid paying the extra stamp duty on the second property as me and my girlfriend will both own it 50/50?

Yes. You can sell the other property, so that you only own one property. You can do that within three years of completion on this purchase, and reclaim the 3% SDLT premium.

AnotherJoe

AdrianC wrote: »

Yes. You can sell the other property, so that you only own one property. You can do that within three years of completion on this purchase, and reclaim the 3% SDLT premium.

But that wouldn't allow the OP to have their cake and eat it ????