Reducing additional stamp duty on second home by buying a cheaper property first

andy230uk

My wife and I are looking at moving out of the flat I own in the not too distant future.

I'd like to keep hold of the flat which obviously makes us liable to pay the higher rates of stamp duty on our next place.

We're looking at properties in the region of £300k meaning the stamp duty would be around £14k.

I'm entertaining the possibility of moving into a cheaper house for a year first to reduce this, before then buying the £300k forever home.

If I bought a house for £190k, I'd still be liable for additional stamp duty but it would be £7k, a saving of £7k.

I could then sell it and buy a £300k house which according to the wording below, would not be liable for the additional stamp duty.

"
If the home you are buying replaces your main residence, you will not be liable for the 3% surcharge, even if you own an additional property/properties (such as a second home or a flat you rent out) at the same time. This example is from the Government's consultation document:

"A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply."
"

I'm just trying to work out if this logic makes sense, is legal etc.
I fully appreciate that the £7k saved could well get eaten up in fees for buying 2 houses and selling 1 as opposed to just skipping straight to the end game. But in principle, is the above a goer?

Thanks

mrginge

It saves you two grand not seven.

SDLT_Geek

Your "residence" is not just a property you occupy. There has to be a sufficient degree of permanence and expectation of continuity. This is likely to be lacking where the property is a "stop gap" measure or is occupied for fiscal purposes. So you might pay SDLT of about £7K on the first and £14K on the second.

andy230uk

mrginge wrote: »

It saves you two grand not seven.

On a £190k house:

Tax Band % Taxable Sum TAX
£0 - £125,000 3% £125,000 £3,750.00
£125,001 - £250,000 5% £65,000 £3,250.00

Total = £7k



On a £300k house:

Tax Band % Taxable Sum TAX
£0 - £125,000 3% £125,000 £3,750.00
£125,001 - £250,000 5% £125,000 £6,250.00
£250,001 - £925,000 8% £50,000 £4,000.00

Total = £14k

andy230uk

SDLT_Geek wrote: »

Your "residence" is not just a property you occupy. There has to be a sufficient degree of permanence and expectation of continuity. This is likely to be lacking where the property is a "stop gap" measure or is occupied for fiscal purposes. So you might pay SDLT of about £7K on the first and £14K on the second.

Thanks for this. Is this defined anywhere?

mrginge

andy230uk wrote: »

On a £190k house:

Tax Band % Taxable Sum TAX
£0 - £125,000 3% £125,000 £3,750.00
£125,001 - £250,000 5% £65,000 £3,250.00

Total = £7k



On a £300k house:

Tax Band % Taxable Sum TAX
£0 - £125,000 3% £125,000 £3,750.00
£125,001 - £250,000 5% £125,000 £6,250.00
£250,001 - £925,000 8% £50,000 £4,000.00

Total = £14k

So in a year when you sell the 190k house and buy the 300k one instead will you not be paying any stamp duty at that point?

gettingtheresometime

Have you factored in the buying and selling costs of this cheaper home as surely you'd have to deduct that from the potential saving.


Also buyers of your cheaper house might also wonder why you're selling so quickly as well

SDLT_Geek

andy230uk wrote: »

Thanks for this. Is this defined anywhere?

You will find HMRC Guidance on it in the context of the higher rates of SDLT here: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09812
It includes the paragraph: "Merely occupying a property will not in itself make it a main residence. There needs to be a permanence and expectation of continuation to the occupation to establish it as a main residence."

AnotherJoe

Someone posted here perhaps a year ago a legal case where someone had done exactly what you proposed and HMRC won in court arguing the cheaper property was an attempt to evade the extra SDLT. He was I think doing it on a grander scale, let's say buying a 1 bed flat and then latera million pound house so maybe you'd get away with it.
However From what's been posted so far I doubt you'd save much money anyway, once you add two sets of SDLT and an extra set of legal costs in.

00ec25

mrginge wrote: »

So in a year when you sell the 190k house and buy the 300k one instead will you not be paying any stamp duty at that point?

had you made the same point as "gettingtheresometime" has done re buying and selling costs I would have agreed with you. The net saving cannot be 7k since there will be an interim property whose buying and selling costs are wholly "lost" since that property was never intended to be a home, merely a stepping stone to reduce overall tax

So, your response above is meaningless. The SDLT on purchase is 7K compared to 14k, that is fact. Whether something is sold in the same year is irrelevant for SDLT since there is no SDLT on sale. Where you got your 2k saving figure from is thus unknown

mrginge

00ec25 wrote: »

had you made the same point as "gettingtheresometime" has done re buying and selling costs I would have agreed with you. The net saving cannot be 7k since there will be an interim property whose buying and selling costs are wholly "lost" since that property was never intended to be a home, merely a stepping stone to reduce overall tax

So, your response above is meaningless. The SDLT on purchase is 7K compared to 14k, that is fact. Whether something is sold in the same year is irrelevant for SDLT since there is no SDLT on sale. Where you got your 2k saving figure from is thus unknown

It’s quite simple me old mucker.

I ignored buying and selling costs because the Op stated that they were aware of their effect being possibly to eradicate any or all of this theoretical 7k gain. I felt rather than lecture them on something that they were already aware of I would just deal with this 7k instead

The op thinks they save 7k by buying a 190k second purchase instead of a 300k one.
I think that if they buy the 190k house they pay 7k. Then I think that if they sell it in a year and buy the 300k one they will get another 5k stamp duty Bill because stamp duty on a normal £300k purchase is 5k. I don’t know where you think I was discussing SDLT on a sale so frankly your response is meaningless.

I have then worked out that 7+5=12 and that 14-12=2.
So I think that the 7k they think they are up *before any buying and selling costs are included* is actually only 2k.

I hope this clears things up for you.