Stamp duty & second home

uknick

My mother intends to sell her house and with the proceeds buy a home to live in and also joint buy a property with my brother so he has somewhere to live. Both new houses will be about £230k each.

The home she buys to live in will attract the standard rate of SDLT and cost about £2,100. However, the other property will be a 2nd one for her but the only one for my brother.

What happens with regard to stamp duty on the 2nd property? If she owns it outright it'll attract £9k of duty. But, if she only puts in 50% are the two shares treated separately for SDLT purposes? Will she be taxed on £115k as a 2nd property and he is taxed as a single property owner, in which case it'll fall below the £125k start point?

00ec25

no idea how many times this has been covered. If two people own a property then it attracts higher rate if the value of the share in the joint property of the person who already owns another property is worth more than 40k

read the guide !!!
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties

section 3.42 (page 14) onwards deals with joint purchasers

SDLT_Geek

There is a nuance here around the order in which your mother buys the properties. I am assuming she presently owns one property only and is selling it, then buying the two, one for her to live in and one jointly with your brother.


If she buys the one for her to live in first and the one with your brother either on the same day or afterwards then it is as you say:


(a) The ordinary rates of SDLT should apply to the purchase price of the one for your mother to live in.
(b) The higher rates of SDLT would apply to the purchase price of the one bought jointly with your brother (as 00ec25 points out the higher rates apply to the whole price, even though it is only the circumstances of one of the joint buyers which means the higher rates are due).


But what if you do the transactions in a different order? What if after the sale of her house your mother buys a house jointly with your brother and on a later date buys a house for herself to live in? The stamp duty land tax rules mean:


(a) On the joint purchase with your brother that is the only property she has an interest in, so the ordinary rates of SDLT apply to that.
(b) On her later purchase she can take advantage of the replacement exception, so the ordinary rates apply to that as well.

It is all change for purchases in Wales completing on or after 1 April 2018 when Land Transaction Tax will apply instead. That has a different rule for this situation, with a catch up charge on the first purchase when the second property is bought.

uknick

00ec25 wrote: »

no idea how many times this has been covered. If two people own a property then it attracts higher rate if the value of the share in the joint property of the person who already owns another property is worth more than 40k

read the guide !!!
https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties

section 3.42 (page 14) onwards deals with joint purchasers

I did look at the HMRC site, but clearly missed the full guidance. Anyway, thanks for the link which makes it very clear how much SDLT is to pay. I'd better break the bad news to them they'll need to find over £11k for SDLT.

uknick

SDLT_Geek wrote: »

There is a nuance here around the order in which your mother buys the properties. I am assuming she presently owns one property only and is selling it, then buying the two, one for her to live in and one jointly with your brother.


If she buys the one for her to live in first and the one with your brother either on the same day or afterwards then it is as you say:


(a) The ordinary rates of SDLT should apply to the purchase price of the one for your mother to live in.
(b) The higher rates of SDLT would apply to the purchase price of the one bought jointly with your brother (as 00ec25 points out the higher rates apply to the whole price, even though it is only the circumstances of one of the joint buyers which means the higher rates are due).


But what if you do the transactions in a different order? What if after the sale of her house your mother buys a house jointly with your brother and on a later date buys a house for herself to live in? The stamp duty land tax rules mean:


(a) On the joint purchase with your brother that is the only property she has an interest in, so the ordinary rates of SDLT apply to that.
(b) On her later purchase she can take advantage of the replacement exception, so the ordinary rates apply to that as well.

It is all change for purchases in Wales completing on or after 1 April 2018 when Land Transaction Tax will apply instead. That has a different rule for this situation, with a catch up charge on the first purchase when the second property is bought.

Both properties will be purchased on the same day to keep it simple. My mother is over 90 years old and is struggling with the different types of ownership, joint tenants or tenants in common, and their implications with regard to her estate. I'm not sure she will be able to understand the nuances of timing the ownership.

Mind you, the rules on the 2nd property seem to negate my brother's intention of stating he's a 1st time buyer, despite have owned three properties in the past, to avoid paying stamp duty.

00ec25

SDLT_Geek wrote: »

But what if you do the transactions in a different order? What if after the sale of her house your mother buys a house jointly with your brother and on a later date buys a house for herself to live in?

that would work, but only if mother moves into a rental property for the few months between selling and buying her new home? If she moves in with brother then that is her new main home and the standard rate opportunity is lost, as the disposal is not of her most recent main residence

SDLT_Geek

uknick wrote: »

Mind you, the rules on the 2nd property seem to negate my brother's intention of stating he's a 1st time buyer, despite have owned three properties in the past, to avoid paying stamp duty.

Your brother is not a first time buyer if he has acquired dwellings in the past. So being gifted a house or inheriting a share in a flat would rule out the relief. But buying a plot of land and building a house on it would not.


Anyway this is not very relevant if the higher rates of stamp duty land tax are due anyway because of him buying with your mother.

xylophone

Is your brother using his own savings to provide half the cost of the property he will occupy?

If so, can your mother not enter into a legally binding agreement to lend him half the purchase price of his new home and take a first charge on this property?

He'd be best advised not to make a fraudulent claim that he is a first time buyer if he isn't.

SDLT_Geek

00ec25 wrote: »

that would work, but only if mother moves into a rental property for the few months between selling and buying her new home? If she moves in with brother then that is her new main home and the standard rate opportunity is lost, as the disposal is not of her most recent main residence

Interesting point 00ec25 which I will follow up just for interest, though from what OP now says it might not affect him. Let us say for the sake of argument that mother completes her sale and jointly buys with her son on the same day and moves in with him, planning for it to be for about two months before she can buy her long term home.


To get within the replacement exception for her later purchase she has to meet a number of conditions. She will meet the following ones:
(a) On the date of the completion of the later purchase she intends to live in that property as her only or main residence.
(b) In the previous three years she disposed of a major interest in another dwelling (the sold dwelling).
(ba) Neither she nor any spouse retain any major interest in the sold dwelling (this is the new condition that came in with the Autumn Budget 2017).
(c) That within the last three years she had lived in the sold dwelling as her only or main residence.


The interesting condition here is condition (d), that at no time between the completion of the sale of the sold dwelling and the completion of the later purchase, has she acquired a major interest in another property intending to live in it as her only or main residence.


Yes, she has jointly bought another property in between: she has jointly bought with her son, and intended to move in with him. But if her firm intention in moving in is that it is a temporary arrangement, then it seems she does not fall foul of condition (d), but can meet it. For a property to be a person's residence requires a degree of permanence and expectation of continuity.

uknick

The way my brother wishes this to happen is for her to buy the 2nd home completely. He wishes to leave his savings of circa £100k to live off when he comes back to the UK and before he can find a job. He will only contribute to the purchase if she doesn't have enough equity to cover both properties.

My mother is getting pretty confused as to what is going to happen with regard to equity. I don't think she'll be able to understand having a charge against the property. As I said, she is not able to hold a conversation as to the different types of ownership without walking away confused. I'm pretty sure he wants to persuade her to make them joint tenants and all that entails for him.

Anyway, I've had my SDLT question answered and will let them know to expect a large bill.

00ec25

SDLT_Geek wrote: »

For a property to be a person's residence requires a degree of permanence and expectation of continuity.

as you well know that is the interpretation used in CGT case law, and SDLT is now deemed to draw its foundations from such case law,

I agree that if she had tried to evade CGT on bother's house by claiming it was her main residence she would most likely fail due to the reasons you cite. However, as you are the geek, has there been any case law on those circumstances for SDLT yet ? The spirit of the law ought to deny her claim of lack of continuity as it is an obvious loophole in SDLT terms but therefore counter to CGT law