Stamp duty confusion.

Peckedhen

Having retired, we have just sold our house to downsize but cannot find one to buy so, in the meantime, we decided to rent.

Horrified at the cost of renting, we contemplated buying a small, cheapish place to live in temporarily, then, when we find the house of our dreams, buying that and possibly renting out the first house. We know that stamp duty on a second property is extra but cannot work out if we'd have to pay the extra on the second (more expensive) property. Is buying twice a good idea? Is anyone able to advise please.

Pixie5740

You will pay the additional 3% SDLT when you purchase the additional property i.e. the second, more expensive, property.

A simple way to think of it is that you will start the transaction with one property (the one you will be living in and eventually let out) and end it with two properties (the one being let and the new one you will live in.).

See HMRC's Guidance Note for further information.

Peckedhen

Thanks Pixie.

I have read the guidance note but I'm not much wiser. I know that I have to pay extra for a second property but I thought that your main residence (which the second property will be) was exempt. Could I retrospectively pay it on the first property if I nominate the second as my main home? Sorry for being so thick, this is like double dutch to my aging brain!

Pixie5740

You don't pay the surcharge if you are replacing your main home but you won't be replacing your main home, you'll be keeping hold of your main home to let out whilst buying another property and therefore the surcharge will be payable.

You pay SDLT when you purchase a property so you can't retrospectively apply the surcharge to a property you already own.

Peckedhen

Thanks again. I think that we will just have to bite the bullet and rent, we would end up paying more in the long run if we went with my first idea. I really appreciate your help. :beer:

tim123456789

In this circumstance you will get the extra 3% back if you sell the first house within a certain time period.


It is the keeping it to rent out that is the dumb move here, not the buying of it in the first place (other costs not inconsiderable, of course)

DaftyDuck

It's worth doing the sums, and seeing quite how much (or little) the additional 2% duty ends up being. We see loads of threads on here, often from budding property entrepreneurs rather than retiring folk like yourselves, where the additional duty appears to completely wreck their business model, future prospects and even their likely survival.

Put into context, it's often less than six month's house price increase, or a few months rent, or a year's salary savings. Not to be sneezed at, but often not worth changing your plans.

In your case (although personal circumstances may alter this), I would have thought the additional flexibility in buying, possible better bargaining position, and general simplicity on timetables would be a rental price worth paying. I don't know if you are changing area but, if you are, the local knowledge you might gain by renting in an area before purchase would be incalculably valuable.

I always rent between sale & purchase, and never regret it, and I move a lot. Remember, you don't need to unpack everything, much can be stored in a dry double-garage, and the removal firm can simply bung much of it into their storage. You can then rent a smaller property for the interim.

booksurr

Peckedhen wrote: »

Having retired, we have just sold our house to downsize but cannot find one to buy so, in the meantime, we decided to rent.

Horrified at the cost of renting, we contemplated buying a small, cheapish place to live in temporarily, then, when we find the house of our dreams, buying that and possibly renting out the first house. We know that stamp duty on a second property is extra but cannot work out if we'd have to pay the extra on the second (more expensive) property. Is buying twice a good idea? Is anyone able to advise please.

the rules (as they stand at the moment - they can change again of course!) mean:

if you buy a small place to live in temporarily, retain it to let and then buy another final home to live in you will pay the higher rate (+3% not +2%) SDLT on the purchase cost of the final home since that is an "additional" property

if you (complete) purchase the new final home on/before 28 November 2018 and sell the temporary home, you are eligible to reclaim the higher rate SDLT on the basis you have replaced your main residence since the "temporary" house was your previous main residence, even if you subsequently let it out as you did not live elsewhere inbetween

if you complete after 28 November 2018, in order to claim a refund you must have lived in the "temporary" house within the previous 3 years of you purchasing the "final" main residence and within that same 3 years you must have sold the old property

see paras 3.20 and 3.21 of the guide
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/570876/SDLT_Higher_rates_for_additional_properties.pdf

in simple terms, after 2018 the maximum length of time you could let a property for is less than 3 years to enable you to reclaim the SDLT

Clairabella

Thank you very much to those who took the time to explain the rules. Your help is really appreciated.