avoiding additional stamp duty

chip2000

My sister is purchasing a house with a friend but as she owns a flat, which she has always rented out (our parents gifted it to her in 2013), she looks to be obligated to pay a higher rate of stamp duty (approx £8,000 on top of the standard duty).

The house she is buying will be her main residence.

The rental flat she owns is worth approximately £50 to £55k.

According to example 36 on the gov.uk website (sorry can't post links yet)
"G currently owns a property worth less than £40,000 which he does not intend to sell. He decides to purchase another residential property. At the end of the day of transaction, he is deemed to own one residential property as his ownership of the property worth less than £40,000 is not taken into account. Therefore, the higher rates will not apply."

But there is a conflicting advice on another website (Sourcing Property)
"If your answer is two or more, then there are a number of outcomes. Bear in mind that you will be deemed to own more than one property even if you own just a share in one already – if your share is worth more than £40,000."

Can she sell a part of her flat (to me) to bring her share down to less than £40k to avoid the additional duty or is the above advice incorrect and she is obligated to pay based on the value of the property.

marliepanda

chip2000 wrote: »

My sister is purchasing a house with a friend but as she owns a flat, which she has always rented out (our parents gifted it to her in 2013), she looks to be obligated to pay a higher rate of stamp duty (approx £8,000 on top of the standard duty).

The house she is buying will be her main residence.

The rental flat she owns is worth approximately £50 to £55k.

According to example 36 on the gov.uk website (sorry can't post links yet)
"G currently owns a property worth less than £40,000 which he does not intend to sell. He decides to purchase another residential property. At the end of the day of transaction, he is deemed to own one residential property as his ownership of the property worth less than £40,000 is not taken into account. Therefore, the higher rates will not apply."

But there is a conflicting advice on another website (Sourcing Property)
"If your answer is two or more, then there are a number of outcomes. Bear in mind that you will be deemed to own more than one property even if you own just a share in one already – if your share is worth more than £40,000."

Can she sell a part of her flat (to me) to bring her share down to less than £40k to avoid the additional duty or is the above advice incorrect and she is obligated to pay based on the value of the property.

HMRC isn't stupid. They'll see it as a linked transaction.

chip2000

[STRIKE]Ah ok. Wasn't aware of linked transactions! Thanks![/STRIKE]

I had a quick read of linked transactions on the gov uk website. As far as I can tell, myself purchasing a share of her rental flat is one transaction between the same buyer and seller (i.e. myself and her) so it does not even count as a linked transaction.

Also, I'm not sure how your answer is relevant - are you saying that HMRC will see her purchasing a new house with her friend and my purchasing a share in her flat as a linked transaction and she will be liable for the higher stamp duty?

chip2000

AFF8879 wrote: »

As marliepanda says - HMRC will disregard arrangements that it sees as existing purely for the intention of lowering tax liability; what is known as "window dressing". Just tell your sister to pay what she owes.

I don't think marliepanda said what you stated. I thought there may have been other potential issues with doing this.

Pixie5740

It depends. If you are planning on paying your sister £20,000 so that you own the rental property as tenants in common with 40:60 split and your sister's 60% share is worth less than £40k then she can avoid having to pay the additional SDLT. However, as she is disposing of a part of property that is not her main residence she might land herself with a Capital Gains Tax bill instead.

If the plan is for you to buy a share of the property for £20k and then sell it back to your sister for £20k after she has purchased the new property then HMRC will see that as a linked transaction and an attempt to evade tax. Your sister would be setting herself up for a double whammy of CGT and SDLT.

lovinituk

Are you prepared to become a joint landlord and the responsibilities that come with it? Have you looked in to how your share of the rental income will affect your tax status?

G_M

I'm unsure of the 'linked transaction' and 'window dressing' aspects to this.

I suspect that yes, on either count HMRC could claim the additional SDLT.

However it's a pretty specialised aspect of the regulations so you (she) needs proper advice. From a solicitor/accountant or tax expert who is a specialist (not just a bog-standard conveyancer).