Buy to Let Stamp duty question

baby_boomer

A friend currenty rents but also has an inherited 1/3 share in a flat in another city which is rented out and provides a small income.
What happens re stamp duty if he now chooses to buy a flat for himself to live in? Does the ownership of the first flat mean that he can't designate the new purchase as his main residence? Would he have to pay the new higher rate of stamp duty on any new purchase including 8% on the amount above £250K?
If that is the case it seems the logical way forward would be to sell the 1/3 share in the first flat before buying.
Or would the second purchase still count as his "main home" - which it obviously would be in practice.

seven-day-weekend

I'm not at all sure but I would imagine that if he is moving out of his rented main home and buying a house to live in, then the new one would count as his main home.

anselld

If his share of the flat is worth more than £40,000 he would pay the surcharge.

The main residence exemption is for *replacing* a main residence, ie buying one and selling another.

AdrianC

baby_boomer wrote: »

Does the ownership of the first flat mean that he can't designate the new purchase as his main residence?

Whether it's his main residence or not is irrelevant, because he won't be replacing his current main residence - since he doesn't actually own that.

He currently owns one property (assuming his share is £40k+). He will finish up owning two properties. He pays the +3%.

booksurr

seven-day-weekend wrote: »

I'm not at all sure but I would imagine that if he is moving out of his rented main home and buying a house to live in, then the new one would count as his main home.

irrelevant for the purposes of stamp duty. The relevant issues are:
- he is not replacing his current home with the new home because he does not own the place he currently uses as home
- he will therefore go from owning 1 to owning 2 properties so would be liable for the higher rate SDLT
- he will have to pay the higher rate if (and only if) his 1/3 share of the place he does own is worth more than £40,000

why not read the guide then you'll know for the future? OP's case is one of the specific examples:
https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties

booksurr

baby_boomer wrote: »

If that is the case it seems the logical way forward would be to sell the 1/3 share in the first flat before buying.

pointless to sell an asset to avoid a one off cost:

a) does he have the cash to pay the extra SDLT anyway?
b) is holding on to the rental and its income a better investment than selling up and taking a smaller mortgage on the new home

consider...

1. how much is the one off extra SDLT cost at the higher rate
compared to
2. how many years worth of rental income will it take to recover that extra, and
and
3. how much capital growth will he get from the rental place in the time it takes for the rental income to cover the extra SDLT
4. how much will he save in mortgage payments by having a smaller mortgage compared to the rental income and capital growth if he retains the rental property and so needs a bigger mortgage

it may not be logical to sell...

Elfbert

And also, if he only owns 1/3rd of the first flat - who's going to buy it? Who owns the other 2/3rds? What if they don't want to sell, but cannot afford to buy him out?

Definitely some calculations and discussions to be had (all assuming his 1/3rd is valued over 40k)

baby_boomer

Very helpful everyone and as I feared. Elfbert puts his finger on problems further down the line!

baby_boomer

I also found this link which has a helpful flowchart and also says that he can own two properties for up to 18 months and still get a refund of the extra 3% stamp duty from the taxman if he sells the part owned property within that 18 month time frame.

http://www.knightfrank.co.uk/buy-to-let-stamp-duty-calculator

anselld

baby_boomer wrote: »

I also found this link which has a helpful flowchart and also says that he can own two properties for up to 18 months and still get a refund of the extra 3% stamp duty from the taxman if he sells the part owned property within that 18 month time frame.

http://www.knightfrank.co.uk/buy-to-let-stamp-duty-calculator

That link is out of date. The 18 months is now 36 months.

But in any case it does not apply in your case as explained several times above; the 36 month refund period is only for replacement of main residence.

baby_boomer

You are too kind and I am too stupid. Just to clarify, are you saying that my friend would have to sell the 1/3 share before purchasing his own property or the 3% stamp duty surcharge would be permanent?