Stamp duty on new home whilst owning low value property overseas

ameciar

Hi all

My wife and I are buying our first family home, which will be the first home purchase for both of us. However, my mother-in-law has gifted her home to my wife and my sister-in-law a few years ago. The transaction included a stipulation that gives my mother-in-law the legal right to live in the property for the rest of her life.

My mother-in-law’s home is in a developing country, and a quick search of listings of comparable properties in the area indicates that my wife’s share is worth less than £40,000. I understand that as a result we would not be liable for higher rate stamp duty when buying our new home.

I assume that even if the value of her share is less than £40,000, we still need to declare my wife’s interest in the other property to our solicitors/HMRC when buying our new home. Is this correct?

What evidence do we need to provide for the valuation of my wife’s share in the property?

Does the valuation of the other property need to take place on the exact day we buy our new home, or is it ok if we do it a few weeks earlier?

Any thoughts and insights on these questions would be greatly appreciated!

SDLT_Geek

ameciar said:

Hi all

My wife and I are buying our first family home, which will be the first home purchase for both of us. However, my mother-in-law has gifted her home to my wife and my sister-in-law a few years ago. The transaction included a stipulation that gives my mother-in-law the legal right to live in the property for the rest of her life.

My mother-in-law’s home is in a developing country, and a quick search of listings of comparable properties in the area indicates that my wife’s share is worth less than £40,000. I understand that as a result we would not be liable for higher rate stamp duty when buying our new home.

I assume that even if the value of her share is less than £40,000, we still need to declare my wife’s interest in the other property to our solicitors/HMRC when buying our new home. Is this correct?

What evidence do we need to provide for the valuation of my wife’s share in the property?

Does the valuation of the other property need to take place on the exact day we buy our new home, or is it ok if we do it a few weeks earlier?

Any thoughts and insights on these questions would be greatly appreciated!

I assume the purchase is in England, as you refer to HMRC, so the relevant tax is stamp duty land tax (SDLT).

There is a difference between:

(a)  The higher rates of SDLT (the 3% surcharge).  As you say, this is subject to an exception where the value of the share in the other property owned is under £40,000.

(b)  First time buyers' relief for SDLT.  There is no exception here based on low value shares.

I wonder if your wife's interest is subject to a "usufruct" in favour of your mother-in-law?  That could complicate the analysis.

ameciar

SDLT_Geek, thanks for your response!

Yes, the purchase is in England and we understand that first time buyers' relief would not apply to us irrespective of the value of my wife's interest in the other property. I think that the property we are buying is also slightly too expensive to benefit from this type of relief. So my question relates to higher rate SDLT only. 

It is my understanding that my wife's interest is subject to a "usufruct" (great word!) or equivalent legal restrictions. 

SDLT_Geek

ameciar said:

SDLT_Geek, thanks for your response!

Yes, the purchase is in England and we understand that first time buyers' relief would not apply to us irrespective of the value of my wife's interest in the other property. I think that the property we are buying is also slightly too expensive to benefit from this type of relief. So my question relates to higher rate SDLT only. 

It is my understanding that my wife's interest is subject to a "usufruct" (great word!) or equivalent legal restrictions. 

You should explain to your conveyancers that your wife has a half share in a property abroad and the half share is worth under £40,000.  There is nowhere on the "land transaction return" submitted to HMRC which discloses this.  You do need to be ready to explain the situation and provide evidence to HMRC should they enquire into it.

The valuation need not take place on the date of completion of the purchase in England, but the valuation needs to be of the property as it is on that day.  If it worth a lot less than £40,000 then the timing is less critical than if it is close to the £40,000, allowing for currency fluctuations.

A professional valuation would be ideal.  There are alternatives however.  You mention comparable properties. If there is enought data available you could make up a file of comparable properties and their sale prices, with an analysis as to how that evidences the value of your wife's property.

ameciar

Thanks SDLT_Geek, really appreciated. We'll get working on this!