Stamp Duty - Higher Rate and additional property

Homehunt212

Hi all. I wonder if someone much cleverer than I am can help/confirm my situation.

I am trying to buy a home and have run into a problem with stamp duty and inherritence. 

Background: in 2016 my Dad passed away, he had created a trust which passed his half of the property in which he lived with my mum (who currently resides at the property) down to his 3 children, of which I am one.  So in effect, I and my siblings have a 1/6th share of the property, with mum holding 1/2. At the point this came into effect, I was still living at home (in the property) and saving to move into my own 1st home, while my older brother and sister each owned their own separate properties prior to the trust being enacted.

About 2 years ago I moved out of the property and into a rented property with my girlfriend. We have saved our butts off the last 6 years and are finally in a position to purchase a property. We found a place we really liked and had an offer accepted, however, while talking to the solicitors they have highlighted that we would not be eligible for the standard stamp duty rate (let alone 1st-time buyer rate) as I have a share in the property as outlined above. I was shocked to find out I would be looking at paying approx. £20,000 in tax. Talking to my brother and sister we investigated and they maintain that because they have existing properties prior to the trust coming into existence, they would pay standard stamp duty as they would replace their main residence if they moved homes in the future, whereas because I am ostensible a 1st-time buyer (i cannot replace /sell the main residence as I only have 1/6 stake) I have to pay the highest rate of stamp duty going.

My girlfriend is a first-time buyer and I feel terrible that she is looking at the prospect of shouldering a £20,000 tax with me when she is just trying to get on the ladder.

I don't know what I am expecting to get from this post, perhaps if someone can just confirm the above I can try to find a way to pay the tax and move on. Like I said I know I am not technically a first-time buyer because of the 1/6 share but I'm in the same situation as one and only have access to similar resources (income savings). Be great to hear from anyone that has been in a similar situation. I was looking on the forum but could not find a similar post.

Thanks in advance to anyone that can help. 

hpsauce86

Could your girlfriend get the mortgage solely in her name? (Appreciating it would only be based on her wage). 

I have first time buyer status but my partner doesn’t (for similar reasons to your own really). So we’ve gone down this route for our first home together. Not the ideal situation as we’d be able to find a much more expensive home, but we’ve still found one in budget that will suit us for at least 10 years. 

Appreciate it might not work for you though. There are lots of stamp duty experts on here who should be able to offer more practical advice than me though! Good luck! 

Homehunt212

Thanks so much for taking the time to respond. I will take a look at your suggestion and see if it's practical for us.

dell12

Alternatively, you could relinquish your share of the family property to another family member?

While you still wouldn't benefit from the first-time buyer stamp duty rate, you would not be paying the 3% surcharge.

Homehunt212

Thanks, dell. I'm just looking into this. Think you have to pay Stamp Duty on property transfer also, but the value of the 1/6 share falls below the minimum threshold, so could be worth looking into. I am not sure if my family have the cash at hand to reimburse my share, will have to think about this. 

SDLT_Geek

Homehunt212 said:

Hi all. I wonder if someone much cleverer than I am can help/confirm my situation.

I am trying to buy a home and have run into a problem with stamp duty and inherritence. 

Background: in 2016 my Dad passed away, he had created a trust which passed his half of the property in which he lived with my mum (who currently resides at the property) down to his 3 children, of which I am one.  So in effect, I and my siblings have a 1/6th share of the property, with mum holding 1/2. At the point this came into effect, I was still living at home (in the property) and saving to move into my own 1st home, while my older brother and sister each owned their own separate properties prior to the trust being enacted.

About 2 years ago I moved out of the property and into a rented property with my girlfriend. We have saved our butts off the last 6 years and are finally in a position to purchase a property. We found a place we really liked and had an offer accepted, however, while talking to the solicitors they have highlighted that we would not be eligible for the standard stamp duty rate (let alone 1st-time buyer rate) as I have a share in the property as outlined above. I was shocked to find out I would be looking at paying approx. £20,000 in tax. Talking to my brother and sister we investigated and they maintain that because they have existing properties prior to the trust coming into existence, they would pay standard stamp duty as they would replace their main residence if they moved homes in the future, whereas because I am ostensible a 1st-time buyer (i cannot replace /sell the main residence as I only have 1/6 stake) I have to pay the highest rate of stamp duty going.

My girlfriend is a first-time buyer and I feel terrible that she is looking at the prospect of shouldering a £20,000 tax with me when she is just trying to get on the ladder.

I don't know what I am expecting to get from this post, perhaps if someone can just confirm the above I can try to find a way to pay the tax and move on. Like I said I know I am not technically a first-time buyer because of the 1/6 share but I'm in the same situation as one and only have access to similar resources (income savings). Be great to hear from anyone that has been in a similar situation. I was looking on the forum but could not find a similar post.

Thanks in advance to anyone that can help. 

Here are few points which might help:

(a)  If your 1/6 share is worth under £40,000 then it does not "count against" you for the purposes of the 3% surcharge (though you are not a first time buyer, even then).

(b)  As mentioned, if you dispose of your interest in the inherited property before you buy your home, then the 3% extra is not due.

(c)  Otherwise it seems the 3% extra will be due as you have been advised.  It might be recoverable though if:
(i) You complete the purchase within three years of moving out of the inherited property and
(ii)  You completely dispose of your interest in the inherited property within three years of completing the purchase of your new home.

Homehunt212

Point C is interesting and I think would apply to my situation. We moved to the current rental property in July 2020 and we will be looking to complete a purchase this year, so perhaps I will have 3 years to figure out if we can recover it.
Thanks so much SDLT_GEEK