Confused, second property, options??

MrRee_2

Hi

I have searched about and can't actually find an answer!

A friend is 60 years old and is taking 25% tax free cash lump sum and a pension - but continuing working.

They own their main home outright, worth about £450k and want to buy a second home at the seaside at a price of £450k.

They are aware of the Stamp Duty hit and are planning on selling the main home within the 36 month limit and re-claim the 3% tax back.

They need to borrow £130k to make it happen .... interest only and to be repaid within 3 years (upon the sale of the main home).

Anything they should know?

What would be the best way to fund? They are thinking borrow £130k on the main residence so that they are a straight cash buyer on the second home ... with all the great advantages that gives on haggling hard on the asking price.

There is nothing online about this situation at all ... lots on second mortgages, second charges, re-mortgages, etc. but not on the above!

They can afford the interest only mortgage rates - but, due to their age, the repayment mortgages would be very tight.

SDLT_Geek

To be able to recover the 3% SDLT surcharge on the seaside property it is vital that your friend buys it with the intention of living in it as his only or main residence. It does not wot work if he buys it as a second home. The rules are in FA2003/Sch4ZA/para3 (6).

Lilla_D

Dependent on income, outgoings, etc, an interest only mortgage of £130k could be done even for a 60yr old. It all comes down to the details when trying to identify the right lender.

MrRee_2

Thank you for the replies...

Income of the couple is around £70k total part time wages and pension for the male.

Outgoings currently are Council Tax, Water and Gas/Electric .. plus food and clothing. Zero in loans for their cars. No debts on anything else.

Spare monthly cash is around £3500 currently?

Main question is where to go for the £130k interest only loan, what type of loan is it called (Mortgage on the main residence?).

Regarding the stamp duty question above .... surely just the activity of moving into the second home as your main residence would trigger a rebate?? How do you make concrete your intention with the tax man that you are intending that to be??

MrRee_2

SDLT_Geek wrote: »

To be able to recover the 3% SDLT surcharge on the seaside property it is vital that your friend buys it with the intention of living in it as his only or main residence. It does not wot work if he buys it as a second home. The rules are in FA2003/Sch4ZA/para3 (6).

What does the 12 months refer to in the following?

HM Revenue and Customs must have your request within 3 months of the sale of your previous main residence or within 12 months of the filing date of the return, whichever’s later.

SDLT_Geek

MrRee wrote: »

Regarding the stamp duty question above .... surely just the activity of moving into the second home as your main residence would trigger a rebate?? How do you make concrete your intention with the tax man that you are intending that to be??

The trigger for a rebate of the 3% surcharge would be the sale of a property that your friends used to live in as their only or main residence. A necessary pre condition is that the new property was bought with the intention of living in it as an only or main residence.


So it does work for example to buy the new place intending it to live in it as a main residence but not move in straight away, perhaps whilst some alterations are made. The person might live in the old home for a while during the works to the new one. They then move into the new one; the old one might sit empty or be let out. It is a sale of the old one within three years that triggers the right to claim a refund. The triggering of the refund is not related to the date one moves into the new house.


It does not work to buy the new one with the intention of first letting it out / using it as a holiday home or as a second home. Even if later the old one is sold and your friend moves into the new one, your friend has fallen at the first hurdle if the new one is bought with the intention of it being a second home. There is no system of elections, unlike for capital gains tax.

kingstreet

MrRee wrote: »

Thank you for the replies...

Income of the couple is around £70k total part time wages and pension for the male.

Outgoings currently are Council Tax, Water and Gas/Electric .. plus food and clothing. Zero in loans for their cars. No debts on anything else.

Spare monthly cash is around £3500 currently?

Main question is where to go for the £130k interest only loan, what type of loan is it called (Mortgage on the main residence?).

Regarding the stamp duty question above .... surely just the activity of moving into the second home as your main residence would trigger a rebate?? How do you make concrete your intention with the tax man that you are intending that to be??

It's a remortgage of an unencumbered property.

Be careful. Interest-only or not, affordability is based on the cost of a repayment mortgage and the term available may make this an issue.

Get independent broker assistance.

SDLT_Geek

MrRee wrote: »

What does the 12 months refer to in the following?

HM Revenue and Customs must have your request within 3 months of the sale of your previous main residence or within 12 months of the filing date of the return, whichever’s later.

It is 12 months from the date 30 days after the completion of the purchase of the new property. This is explained in more detail below.


So the first transaction would be the purchase of a property to live in as an only or main residence (the new property). The 3% surcharge might have to be paid if the old home is retained at that point. But often the 3% can be recovered if the old property is sold within 3 years of the purchase of the new one. The later sale of the old property is the trigger for the repayment. The time limit for making the repayment of the 3% paid on the new property is the later of:


(a) 3 months from the completion of the sale of the old property.
(b) 12 months from the date a return had to be filed for the purchase of the new property. Currently returns have to be filed within 30 days of completion, though this is to change to 14 days next year.

MrRee_2

Thank you for the posts ..... the intention is to retire into the property within 3 years as a main residence.

During that time they will be using it when they can and making it a retirement home, most bungalows need modernising and updating and work will be done to get it right.

The old main home also needs modernising to maximise the sale price and this work will be going on as well. They will be working part time close to the old property to pay for the costs involved in updating both properties.

The replacement property is in another county, is it better to change to that county electoral role? To show intention that this is to be the main residence once the old property is sold.

They were under the impression that as long as they sold the old property within 3 years the 3% SD would be refunded ..... it seems much more complicated than that?! As no-one buys a holiday home/second home for just 3 years ..... ?

Neither home will be rented, they will both be lived in equally - about 3 days in one and 4 in the other a week ...... whilst they update both, the old will be sold and the move to the new completely once they stop work completely (within 3 years).

I guess capital gains won't factor for the old property despite that the new property is declared as the main residence going forward?

So, a remortgage on an unencumbered property would be the way to go? £130k loan on a value of £450k?

---

I still don't understand this statement:- "12 months from the date a return had to be filed for the purchase of the new property" ... I've read it and re-read it ...

SDLT_Geek

MrRee wrote: »

I still don't understand this statement:- "12 months from the date a return had to be filed for the purchase of the new property" ... I've read it and re-read it ...

It is probably best to explain these time limits by examples.


A new property is bought on 1 February 2017 and the 3% surcharge is paid because an old property is retained. A return has to be filed for that purchase within 30 days, so by 3 March 2017. Let us look at different dates for the later completion of the sale of the old property.


1. The sale of the old property completes on 1 April 2017. The reclaim must be made by the later of
a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 July 2017)
so the deadline to claim the refund is 3 March 2018


2. The sale of the old property completes on 1 June 2017. The reclaim must be made by the later of
a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 September 2017)
so the deadline to claim the refund is 3 March 2018


3. The sale of the old property completes on 1 December 2017. The reclaim must be made by the later of:
(a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 March 2018)
so the deadline to claim the refund is 3 March 2018


4. The sale of the old property completes on 1 February 2018. The reclaim must be made by the later of:
(a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 May 2018)
so the deadline to claim the refund is 1 May 2018


5. The sale of the old property completes on 1 June 2018. The reclaim must be made by the later of
a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 September 2018)
so the deadline to claim the refund is 1 September 2018


6. The sale of the old property completes on 1 April 2019. The reclaim must be made by the later of
a) 12 months from 3 March 2017 (3 March 2018) and
(b) 3 months from the sale completing (1 July 2019)
so the deadline to claim the refund is 1 July 2019.

MrRee_2

Thank you for that ... I shall scribble it down and see if I can get my head around it!

An Estate Agent has told my friends that the rebate is only paid at the end of the tax year ..... ie. if the claim is made in mid April you have to wait until March the following year - !!! Can this be correct? It's shocking if so.