Does second home stamp duty apply when buying my first main residence? Own a buy-to-let already.

CS_

Hi everyone, I'm wondering if I/we will have to pay 2nd home stamp duty when buying my first residential property please. Since 2016 my fiance and I have stepping-stoned towards a full residential mortgage in the following way:

- I bought a buy-to-let mortgage flat and rented it out in a cheaper city, whilst living in rented accommodation in London, to get a foot on the property ladder as we couldn't afford London

- later my partner bought a 25% share in a shared ownership flat in London and we both moved in together, under his name

- we saved up a deposit and just got a mortgage offer to staircase to 100% for his shared ownership flat as joint owners

We'd ideally now sell the rented out flat, as our aim was just to buy one place for us to live in London - but the rented out flat has been unsellable since 2019 whilst all the new fire regulations slowly become clearer, there are timber balconies which need replaced (although not on my flat, but the whole building failed the EWS1 certificate).

I'd be buying my first main residential home, but do have the buy-to-let flat which would be a second home - will my fiance and I have to factor in second home stamp duty? I can see there's an exemption if 'replacing' your main residential home even if you own other properties, but it says nothing about buying a first residential home when owning another property. If we are liable, I'm also wondering if we pay this second home stamp duty on the 75% share we're purchasing, or the full 100% value of the property?

Thanks very much for reading.

SDLT_Geek

CS_ said:

Hi everyone, I'm wondering if I/we will have to pay 2nd home stamp duty when buying my first residential property please. Since 2016 my fiance and I have stepping-stoned towards a full residential mortgage in the following way:

- I bought a buy-to-let mortgage flat and rented it out in a cheaper city, whilst living in rented accommodation in London, to get a foot on the property ladder as we couldn't afford London

- later my partner bought a 25% share in a shared ownership flat in London and we both moved in together, under his name

- we saved up a deposit and just got a mortgage offer to staircase to 100% for his shared ownership flat as joint owners

We'd ideally now sell the rented out flat, as our aim was just to buy one place for us to live in London - but the rented out flat has been unsellable since 2019 whilst all the new fire regulations slowly become clearer, there are timber balconies which need replaced (although not on my flat, but the whole building failed the EWS1 certificate).

I'd be buying my first main residential home, but do have the buy-to-let flat which would be a second home - will my fiance and I have to factor in second home stamp duty? I can see there's an exemption if 'replacing' your main residential home even if you own other properties, but it says nothing about buying a first residential home when owning another property. If we are liable, I'm also wondering if we pay this second home stamp duty on the 75% share we're purchasing, or the full 100% value of the property?

Thanks very much for reading.

There are some grey areas around staircasing and the SDLT treatment.  

Perhaps your partner elected to pay SDLT on the full market value when he bought the 25% share?  If so, there would be no more SDLT to pay on staircasing.

There is an argument that staircasing a leasehold flat can’t be liable to the 3% extra because of the nature of what is acquired. My view is that the legal nature of what is acquired is a rent reduction, not actually a share in the property, despite the way it is usually described.  The 3% surcharge can apply to acquiring a share in the property, but not to a rent reduction.  

I know that not everyone sees it this way.

CS_

SDLT_Geek said:

CS_ said:

Hi everyone, I'm wondering if I/we will have to pay 2nd home stamp duty when buying my first residential property please. Since 2016 my fiance and I have stepping-stoned towards a full residential mortgage in the following way:

- I bought a buy-to-let mortgage flat and rented it out in a cheaper city, whilst living in rented accommodation in London, to get a foot on the property ladder as we couldn't afford London

- later my partner bought a 25% share in a shared ownership flat in London and we both moved in together, under his name

- we saved up a deposit and just got a mortgage offer to staircase to 100% for his shared ownership flat as joint owners

We'd ideally now sell the rented out flat, as our aim was just to buy one place for us to live in London - but the rented out flat has been unsellable since 2019 whilst all the new fire regulations slowly become clearer, there are timber balconies which need replaced (although not on my flat, but the whole building failed the EWS1 certificate).

I'd be buying my first main residential home, but do have the buy-to-let flat which would be a second home - will my fiance and I have to factor in second home stamp duty? I can see there's an exemption if 'replacing' your main residential home even if you own other properties, but it says nothing about buying a first residential home when owning another property. If we are liable, I'm also wondering if we pay this second home stamp duty on the 75% share we're purchasing, or the full 100% value of the property?

Thanks very much for reading.

There are some grey areas around staircasing and the SDLT treatment.  

Perhaps your partner elected to pay SDLT on the full market value when he bought the 25% share?  If so, there would be no more SDLT to pay on staircasing.

There is an argument that staircasing a leasehold flat can’t be liable to the 3% extra because of the nature of what is acquired. My view is that the legal nature of what is acquired is a rent reduction, not actually a share in the property, despite the way it is usually described.  The 3% surcharge can apply to acquiring a share in the property, but not to a rent reduction.  

I know that not everyone sees it this way.

Hi, thanks for your reply - he was a first time buyer so was exempt when buying the initial 25% share. Yes, it is leasehold.

SDLT_Geek

Hopefully he elected to pay SDLT on the full market value.  If so there is no more SDLT on staircasing.

SDLT_Geek

There is another aspect I have not commented on.  That is that your partner is currently the owner of the shared ownership flat, yet it is to end up in joint ownership with you.  So as well as the staircasing transaction I have commented on, there is also potentially stamp duty land tax on the transfer of the lease into joint ownership.  If this is done while he has a 25% "share" (he pays rent on 75% of the value) then the figures might be low.  A fraction of his mortgage is likely to count as chargeable consideration.

CS_

Ok thanks. Does anyone know if the second home stamp duty will apply in this case of buying a main residential home?

saajan_12

Note all SDLT_Geek's points are specific to shared ownership, around whether SDLT is due at all. If it is due, then it would be at the higher rate - you're buying a second property. There's nothing about buying a first main residence for a reason - that's not exempt as you're increasing the number of properties owned. 

CS_

Ok thanks - if I understand correctly, if it is due then it will be at the higher rate, and there's a chance that it will not be due and in this case then it wouldn't be due at the higher rate either?

It's quite an important distinction for us because we don't have enough to pay the 3% tax (assuming it's on the full value, not the new 75% share), so we'd need to pull out and redo the survey, mortgage and re-pay the housing association a few hundred pounds once we've saved up a few thousand pounds more for the tax.

I do think a 2nd home tax is fair, even though my buy-to-let property is currently valued at £0 due to failing the cladding certificate. We just need to understand if it applies and what roughly it will be to see if we can proceed with the staircasing. Neither of us know if he elected to pay the full market value when buying the 25% share, he just followed solicitor advice. Lots of flats in London are leasehold, I'd be surprised (but delighted) if these were exempt from stamp duty.

user1977

CS_ said:

Lots of flats in London are leasehold, I'd be surprised (but delighted) if these were exempt from stamp duty.

Given you already own two (presumably leasehold) flats, surely you know they're not exempt from the normal stamp duty rules?

CS_

user1977 said:

CS_ said:

Lots of flats in London are leasehold, I'd be surprised (but delighted) if these were exempt from stamp duty.

Given you already own two (presumably leasehold) flats, surely you know they're not exempt from the normal stamp duty rules?

Not sure at all - hence trying to understand the advice given further up the thread regarding leasehold, shared ownership. My flat is in Scotland which has a different system (no leasehold), my partner's is leasehold and shared ownership - as a first time buyer he didn't pay stamp duty but he doesn't know if the full value was elected.

SDLT_Geek

CS_ said:

user1977 said:

Not sure at all - hence trying to understand the advice given further up the thread regarding leasehold, shared ownership. My flat is in Scotland which has a different system (no leasehold), my partner's is leasehold and shared ownership - as a first time buyer he didn't pay stamp duty but he doesn't know if the full value was elected.

It would be helpful to have more information about the shared ownership flat.

When he bought it, was it from a social landlord, so that he was granted a new lease?  If so:

• On what date did your partner buy it?
• How much did he pay for the 25% stake?
• What was the market value of the property at the time.

We might be able to work out from that whether it would be consistent with him paying no stamp duty land tax that the election could have been made to pay SDLT on market value.

Some different issues arise if he bought the lease from someone else who already held the lease.