Higher Rate Stamp Duty Question

Windofchange

Hi,

I have a question about higher rate stamp duty. We have had an offer accepted on a house, and are now going through the various legal bits and bobs. Our question centres around the involvement of a second home.

Myself and my partner currently rent the property that we live in, but she also has a property that was brought about 2 years ago which is rented out. My slight confusion comes from what is classed as a main residence. The rented house we are in now is our main residence, and the house we want to buy is going to replace this. My other half however owns a house that she rents out, and therefore does this mean we have to pay the higher rate stamp duty? The law seems to state that if we sell a house that is our main residence and buy another then higher rate SDLT is waived, but can't find much about whether this applies to one that we rent, but are replacing with a purchased property? Any legal types on here?

davidmcn

Windofchange wrote: »

My other half however owns a house that she rents out, and therefore does this mean we have to pay the higher rate stamp duty?

Yes.

The law seems to state that if we sell a house that is our main residence and buy another then higher rate SDLT is waived, but can't find much about whether this applies to one that we rent, but are replacing with a purchased property?

You can't find it, because it doesn't exist. It does somewhat confusingly talk about "replacing" your main residence, but that doesn't simply mean moving house, it means selling your main residence when you buy your new main residence. You're buying an additional property without also selling the place you live in, so even though you're going to live in the new place, the additional rate applies.

You can avoid it by either (a) selling the rental property first (or simultaneously with your purchase), or (b) not buying jointly with your partner (assuming you're not married, because if you were that wouldn't work either).

SDLT_Geek

Yes, higher rates due as davidmcn says if you proceed as planned.

Windofchange

SDLT_Geek wrote: »

Yes, higher rates due as davidmcn says if you proceed as planned.

Ok, thanks both. Looks like we are stumping up the extra, so there goes the planned extension and kitchen upgrade for a couple of years...

On a side note, did I also read that you can claim back the higher rate SDLT within three years if you then sell your extra property, and therefore have only the one? We are considering once settled in putting the existing property up for sale, but this was never our main residence as it were, so not sure that counts for the refund?

AnotherJoe

Windofchange wrote: »

Ok, thanks both. Looks like we are stumping up the extra, so there goes the planned extension and kitchen upgrade for a couple of years...

On a side note, did I also read that you can claim back the higher rate SDLT within three years if you then sell your extra property, and therefore have only the one? We are considering once settled in putting the existing property up for sale, but this was never our main residence as it were, so not sure that counts for the refund?

Unfortunately for you no, selling the rental later would not get you a refund. It would work if you didn't sell your main residence immediately.

SDLT_Geek

I agree with AnotherJoe that selling the rental property afterwards does not entitle OP to a refund.

You should look at disposing of the rented property before you complete your purchase of your new home. Note that a disposal does not necessarily need to be an open market sale.

Windofchange

SDLT_Geek wrote: »

I agree with AnotherJoe that selling the rental property afterwards does not entitle OP to a refund.

You should look at disposing of the rented property before you complete your purchase of your new home. Note that a disposal does not necessarily need to be an open market sale.

We looked at a transfer of deeds to a family member if that is what you mean about it not needing to be an open market sale. I'm not sure we have the time frame however as we are instructing a solicitor and mortgage broker on Monday to proceed with the purchase of the new house, and I would assume any sort of deed change or give away would need a significant amount of time to get sorted?

[Deleted User]

Windofchange wrote: »

We looked at a transfer of deeds to a family member if that is what you mean about it not needing to be an open market sale. I'm not sure we have the time frame however as we are instructing a solicitor and mortgage broker on Monday to proceed with the purchase of the new house, and I would assume any sort of deed change or give away would need a significant amount of time to get sorted?

Are you saying that to avoid paying the higher rate of SDLT your partner is proposing to give away an entire property? Surely the property is worth a lot more than the extra SDLT you'll need to stump up.

What about Capital Gains Tax? Is the rental property mortgaged? Does this family member even want to be a landlord and will (s)he have to pay the higher rate of SDLT themselves?

Windofchange

The property isn't worth a great deal - about 80,000. From doing some cursory reading, you can gift something to a family member for about £500 in legal costs. We are taking about £13,000 extra hit on the stamp duty at higher rate for our new place. We would transfer to one of our parents, and I'm not worried about either side of the family running off with it as it were. I'm not sure that I'm not overlooking something however as surely this would be common place were it this easy?

[Deleted User]

Windofchange wrote: »

The property isn't worth a great deal - about 80,000. From doing some cursory reading, you can gift something to a family member for about £500 in legal costs. We are taking about £13,000 extra hit on the stamp duty at higher rate for our new place. We would transfer to one of our parents, and I'm not worried about either side of the family running off with it as it were. I'm not sure that I'm not overlooking something however as surely this would be common place were it this easy?

To save £13k you're going to give away £80k. That makes no sense to me. You wouldn't have to worry about the family member running off with the property because it would be theirs completely along with the rental income. If you're thinking it can simply be transferred back to your partner after buying the new property then don't be surprised when HMRC cotton on to the ruse and come knocking.

SDLT_Geek

Windofchange wrote: »

We looked at a transfer of deeds to a family member if that is what you mean about it not needing to be an open market sale. I'm not sure we have the time frame however as we are instructing a solicitor and mortgage broker on Monday to proceed with the purchase of the new house, and I would assume any sort of deed change or give away would need a significant amount of time to get sorted?

No, this is not what I was hinting at. As Lover of Lycra says, it does not work to transfer a property into the "name of" a family member expecting to be transferred the property back.

Some people, especially where a let property has significant borrowings, look at the numbers for transferring the property to a limited company. On the plus side is the treatment of income, with a better ability to set off interest against rent. Also on the plus side is the fact that the individual no longer owns the property personally for the purposes of the 3% surcharge.

There are factors on the negative side, such as capital gains tax on the disposal and the cost of running the company. Another negative is that the company will pay higher rates of SDLT on the market value of the property. For a property worth £80,000 that would be £2,400.

It would doubtless take some time to arrange for the transfer to a company, so it sounds as if this might not be an option for OP.