Higher Rate of Stamp Duty - Advice Needed

MinorNinth

Good Evening, 

Last year, my father passed away. I was the only beneficiary of his estate and I inherited his one-bedroom flat, valued at £80,000. This flat is a leasehold property and has approximately 70 years remaining on the lease. My intention is to rent this flat out. 

Together with my own savings, I have put the rest of the inheritance towards a house and, only recently, have had an offer accepted. The purchase price is £220,000.

After reading HMRC's website, I understand that this qualifies me for the higher stamp duty; I currently own another property valued above £40,000 which I do not intend to sell.

However, if possible, could someone clarify the following points:

- If I were to transfer 60% of the flat's ownership to my mother and step-father, reducing the value of my share in the flat to £32,000, would I then be eligible for the lower stamp duty? 

- Condition C (which I believe has to be met in order to qualify for the higher rates) states the following: 'Condition C is that the individual purchaser owns, or is treated as owning, a major interest in another dwelling, anywhere in the world, at the end of the day that is the effective date of the transaction.  That major interest must have a market value of £40,000 or more and not be reversionary on a lease with more than 21 years until expiry'. Would anyone be able to explain this - especially the lease part- and whether it is of any relevance to my situation? 

I have looked around the forum and various websites and I have not found a clear answer. Although I'll be visiting a solicitor next week, I just wanted to get my head around things and to see if this is a feasible approach in the first place. 

Many Thanks

NewShadow

I believe, though I am open to being corrected, transferring the bulk of the share of the property to your parents - who in law count as one unit - would be liable for stamp duty... I hesitate because the share would be under the normal chargeable consideration threshold,  but I assume it would be a second property for your parents and believe therefore the £40k threshold applies... but not if the property transfer is considered a gift... which I'm not sure if it would given you're keeping a share and planning on renting it out therefore beneficial interest... Hmm... it might depend on how you're dividing the liability for the property and income generated. 

Plus, other factors to consider would include: it could increase the eventual inheritance tax due on the estate; and/or be considered an asset should their income need to be assessed for contributions towards care; and/or HMRC could consider the arrangement to be a contrivance in order to avoid the stamp duty - and they have been known consider cases from as long ago as 20 years, so is it worth the risk? 

allconnected

Wouldn’t the £48k interest in the flat you would be giving away be more than the stamp duty you would be saving?

The lease bit in the condition C you quote just means that, for example, the owner of  the freehold of your flat wouldn’t be treated as having a major interest in the flat because someone else (you) has a lease of more than 21 years left on the same property. 

Allconnected.

AdrianC

MinorNinth said:

Last year, my father passed away. I was the only beneficiary of his estate and I inherited his one-bedroom flat, valued at £80,000. This flat is a leasehold property and has approximately 70 years remaining on the lease. My intention is to rent this flat out. 

Together with my own savings, I have put the rest of the inheritance towards a house and, only recently, have had an offer accepted. The purchase price is £220,000.

After reading HMRC's website, I understand that this qualifies me for the higher stamp duty; I currently own another property valued above £40,000 which I do not intend to sell.

However, if possible, could someone clarify the following points:

- If I were to transfer 60% of the flat's ownership to my mother and step-father, reducing the value of my share in the flat to £32,000, would I then be eligible for the lower stamp duty? 

So you're going to give away £48k in order to save £6,600...?

Why?

And, no, because you'd still be buying an additional property.

You currently own two properties. The inherited £80k flat (A), this "another property valued above £40k" (B). You will be buying a third property for £220k (C). So +3% is due on C. Even if you get your interest in A <£40k, you still own B and will be adding C.

I'm not sure how this could be more straightforward. You own two properties now. You will own three properties soon. +3% on the additional property.

NewShadow

AdrianC said:

MinorNinth said:

After reading HMRC's website, I understand that this qualifies me for the higher stamp duty; I currently own another property valued above £40,000 which I do not intend to sell.

...this "another property valued above £40k" (B). You will be buying a third property for £220k (C)...
 
I'm not sure how this could be more straightforward. You own two properties now. You will own three properties soon. +3% on the additional property.

Ah! 

I believe, though could be mistaken, that MinorNinth has caused a little confusion by quoting the HMRC guidance and there is currently only one owned property - the inherited flat - which would count as 'another property valued above £40k which [he does] not intend to sell'. 

MinorNinth

Thanks for the replies so far.
NewShadow: You are correct. At the moment, there is only one owned property. I currently own the flat and I am currently purchasing another property. 

[Deleted User]

There are special rules involving inherited properties and the higher rate of SDLT but as you inherited more than 50% of the property unfortunately they don't apply to you so the higher rate will still apply. 

Like @AdrianC I don't really understand giving away £48k to save £6,600 either. Do you intend to split the rental income 60/40 with your mum and step dad too? 

MinorNinth

Lover_of_Lycra said:

There are special rules involving inherited properties and the higher rate of SDLT but as you inherited more than 50% of the property unfortunately they don't apply to you so the higher rate will still apply. 

Like @AdrianC I don't really understand giving away £48k to save £6,600 either. Do you intend to split the rental income 60/40 with your mum and step dad too? 

As far as I know, HMRC allow you to distribute the rental income in a different percentage proportion to the ownership:

- “joint owners can agree a different division of profits and losses and so occasionally the share of profits or losses will be different from the share in the property. The share for tax purposes must be the same as actually agreed.” 

Therefore, an agreement could be drawn up whereby I receive 95% of the rental income.

In all honesty, I think I'll pay the higher stamp duty in the end. £8500 may seem very high (at least, to me) but it may give me piece of mind knowing I've done the 'correct' thing. 

[Deleted User]

MinorNinth said:

Lover_of_Lycra said:

There are special rules involving inherited properties and the higher rate of SDLT but as you inherited more than 50% of the property unfortunately they don't apply to you so the higher rate will still apply. 

Like @AdrianC I don't really understand giving away £48k to save £6,600 either. Do you intend to split the rental income 60/40 with your mum and step dad too? 

As far as I know, HMRC allow you to distribute the rental income in a different percentage proportion to the ownership:

- “joint owners can agree a different division of profits and losses and so occasionally the share of profits or losses will be different from the share in the property. The share for tax purposes must be the same as actually agreed.” 

Therefore, an agreement could be drawn up whereby I receive 95% of the rental income.

In all honesty, I think I'll pay the higher stamp duty in the end. £8500 may seem very high (at least, to me) but it may give me piece of mind knowing I've done the 'correct' thing. 

SDLT is based on beneficial ownership, not legal ownership, and to receive 95% of the rental income you would need to be the beneficial owner of 95% of the property so that wouldn't help you avoid the higher rate of SDLT.

AdrianC

MinorNinth said:

Lover_of_Lycra said:

Like @AdrianC I don't really understand giving away £48k to save £6,600 either. Do you intend to split the rental income 60/40 with your mum and step dad too? 

As far as I know, HMRC allow you to distribute the rental income in a different percentage proportion to the ownership:
...
Therefore, an agreement could be drawn up whereby I receive 95% of the rental income.

And you don't think that HMRC would be alert to such transparent and blatant tax evasion...?

csgohan4

OP more cleverer accountants have tackled this to no avail, what do you think an internet forum with strangers will yield. Pay your taxes or don't buy