Do I need to pay second home rate of Stamp Duty or not?

sunshine5432

Hi.I am renting and would like to buy my first home.My situation is I inherited half of my grandfathers house and own it 50/50 with my sister. I was told that because of this I would need to pay the higher rate of stamp duty that is for people buying a second home.



I am not certain whether this correct or not though because if I did own my own home and lived in it instead of renting then I could sell that home and buy another and I would pay the normal lower level of stamp duty.


There are often grey areas in the law and the law is often not fair. The house that we inherited was in a very rundown state so we had to spend a lot on it to get it good enough to rent.Then we had some bad luck with tenants leaving so it was empty for a bit and they also left it in less than good condition so again we had to spend more on it. The point I am making is I dont fit the profile of a wealthy second home buyer and it is not that easy for me to buy a first home even.


My preference would be to sell my grandfathers home then the problem would go away but my sister doesnt want to and wont agree to that.The logic behind my thinking is given the amount we spend on its upkeep we barely make a profit from renting it relative to having the value of it in the bank earning interest. Also it is quite a lot of hassle. (Second tenants seem better but first ones were very demanding).



So I wonder if any knowledgable people can clarify whether I would need to pay the higher reate of stamp duty or not. There maybe another thread on the board from someone in a similar situation.


Thanks very much for any help.

SDLT_Geek

It sounds likely that you will have to pay the extra 3% Stamp Duty Land Tax on your purchase if, on the completion of your purchase, you still own the 50% share.

Exceptions from the extra 3% SDLT which could help you are if either:

(a) You inherited the 50% interest within 3 years of the proposed purchase completing (usually starting from the date of the assent / appropriation to you) or
(b) The 50% share at the date of completion of the upcoming purchase is worth under £40,000.

mrschaucer

Could your sister buy you out?

sunshine5432

mrschaucer wrote: »

Could your sister buy you out?

Thank you Geek for your reply.Unfortunutly it is 5 years since I inherited it and the value of my half is probably £115000 ish.


Technically if she was forced to she probably could buy me out with a mortagage but she wouldnt want to. She did do a fair of painting cleaning and tidying in there to begin with but she gets to good of a deal because I generally deal with the tenants and estate agent and manage it.


I could buy her out but again she probably wouldnt want that and I would prefer not to and it would be complicated agreeing a price and so on. Then I would sell the house myself so lose some money through fees that way.

AnotherJoe

sunshine5432 wrote: »

Hi.I am renting and would like to buy my first home.My situation is I inherited half of my grandfathers house and own it 50/50 with my sister. I was told that because of this I would need to pay the higher rate of stamp duty that is for people buying a second home.
That is correct
I am not certain whether this correct or not though because if I did own my own home and lived in it instead of renting then I could sell that home and buy another and I would pay the normal lower level of stamp duty.
Well, do that then.
There are often grey areas in the law and the law is often not fair.
This isn't grey and yes the law isn't often fair but in this case you own a house you dont live in and are looking to buy another, exactly what the law was designed to dissuade. The house that we inherited was in a very rundown state so we had to spend a lot on it to get it good enough to rent.Then we had some bad luck with tenants leaving so it was empty for a bit and they also left it in less than good condition so again we had to spend more on it.
Are you saying the law should be written in such a way as to make exceptions in cases like that?
The point I am making is I dont fit the profile of a wealthy second home buyer and it is not that easy for me to buy a first home even.
The law isn't about wealth . It's about owning a second property. . Thems the rules. It would be easy for you to buy if you sold the house you already own as well I presume ? .
My preference would be to sell my grandfathers home then the problem would go away but my sister doesnt want to and wont agree to that.The logic behind my thinking is given the amount we spend on its upkeep we barely make a profit from renting it relative to having the value of it in the bank earning interest. Also it is quite a lot of hassle. (Second tenants seem better but first ones were very demanding).
Well, that's you and your sisters problem, you could perhaps try to force the issue by saying you no longer wish to be a LL and she either buys you out or you sell also would the extra 3% apply to her as well in future or does she already own a house she lives in?

So I wonder if any knowledgable people can clarify whether I would need to pay the higher reate of stamp duty or not.

Yes you do need to. It's crystal clear.

sunshine5432

Anotherjoe.


I dont think you have quite appreciated the differences between owning half a house with someone else and owning a whole one.Realistically I dont have the option to sell my half without a long legal struggle etc.


I think it would probably be correct to say that it wasnt the intention of this law to penalise first time buyers so its not unreasonable to think that there may have been some allowance or clause for that within the law.Thats sort of what I wanted to find out by staring this thread. Seems that there isnt so its good that I found that out thanks.

Soundgirlrocks

OP, without knowing what the extra stamp duty will be for you v rental income its difficult to say but assuming some very rough figures

Property value £23000
Monthly rent £700???
Annual costs £1500??
Would give you the following
Gross Rental Yield 3.65%
Net Rental Yield 3.00%

Divided by 2 less 20% income tax = £2760pa

Assuming that you buy something at £200k the stamp duty is £7.5k

If you had your share to invest in your own home it would bring down your LTV so you get better mortgage rates, you wouldn't have capital gains to pay on any uplift in value and your monthly payments would be lower (around £500 pcm)

You need to do the maths

• What the property makes you now as a rental (don't forget income tax)
• What the capital would save you if you could invest it in your own home rather than paying interest (remember the LTV on your home would come down so give you access to better rates)
• What the extra stamp duty would cost you

I suspect once you have the figures in front of you what your sister wants might not be as important.

Cheeky_Monkey

sunshine5432 wrote: »

Anotherjoe.


I dont think you have quite appreciated the differences between owning half a house with someone else and owning a whole one.

Well, that's you told Joe :rotfl::rotfl:

You really must try harder

00ec25

sunshine5432 wrote: »

I think it would probably be correct to say that it wasnt the intention of this law to penalise first time buyers so its not unreasonable to think that there may have been some allowance or clause for that within the law.Thats sort of what I wanted to find out by staring this thread. Seems that there isnt so its good that I found that out thanks.

yes, an allowance has been made for FTB inheriting - it is the 3 year rule


complaining that you are now "stuck" after 5 years with a share in a property you cannot sell is just crying

Slithery

sunshine5432 wrote: »

Hi.I am renting and would like to buy my first home.My situation is I inherited half of my grandfathers house and own it 50/50 with my sister. I was told that because of this I would need to pay the higher rate of stamp duty that is for people buying a second home.

Correct.

I am not certain whether this correct or not though...

It is.

because if I did own my own home and lived in it instead of renting then I could sell that home and buy another and I would pay the normal lower level of stamp duty.

Correct again.

There are often grey areas in the law and the law is often not fair.

Once again, correct. Who told you that life was fair?

The house that we inherited was in a very rundown state so we had to spend a lot on it to get it good enough to rent.Then we had some bad luck with tenants leaving so it was empty for a bit and they also left it in less than good condition so again we had to spend more on it. The point I am making is I dont fit the profile of a wealthy second home buyer and it is not that easy for me to buy a first home even.

Unfortunate, but in no way relevant to the tax situation. It was your choice to become a landlord and sometimes business ventures just don't work out.

My preference would be to sell my grandfathers home then the problem would go away but my sister doesnt want to and wont agree to that.

A great example of why the property should have been sold by the estate and the money shared in the first place instead of holding on to it.

The logic behind my thinking is given the amount we spend on its upkeep we barely make a profit from renting it relative to having the value of it in the bank earning interest. Also it is quite a lot of hassle. (Second tenants seem better but first ones were very demanding)

Unfortunately your thinking doesn't change the law.

So I wonder if any knowledgable people can clarify whether I would need to pay the higher rate of stamp duty or not.

Yes. Unless you first sell your share in the property that you currently own.

AnotherJoe

sunshine5432 wrote: »

Anotherjoe.

I dont think you have quite appreciated the differences between owning half a house with someone else and owning a whole one.Realistically I dont have the option to sell my half without a long legal struggle etc.

I think it would probably be correct to say that it wasnt the intention of this law to penalise first time buyers

you arent a "first time buyer" in the definition of the law, its more about first time owners. The Buying is not important. so its not unreasonable to think that there may have been some allowance or clause for that within the law.
What, that some people who randomly decide to own a house in conjunction with someone esle and be a landlord arent eligible and others who own it by themselves arent? How would that work? How "unfair" would that be?
Thats sort of what I wanted to find out by staring this thread. Seems that there isnt so its good that I found that out thanks.

Maybe just the threat would suffice if she is really that set against selling. Are you really saying you are trapped into being a LL at little if any profit, a big chunk of SDLT tax and high risk for the rest of your life by your sister? Maybe thats a problem you should solve first?