Buying additional property - Stamp Duty implications

Zacwhite

I am looking to move house and therefore purchase another property but intend to hang on to my existing one for a while.
I understand that, as a result, I will pay the higher rate of Stamp Duty as I will be seen for a time as owner of 2 homes.
I also understand that, as long as I sell the current main property within a 3 year period, I will be able to claim back a Stamp Duty refund.

The question I have is as follows ; I was looking at possibly renting out my current house for a couple of years and then selling but is there a requirement that I have to have my house actually on the market before I move into my new one ? ( I have not seen this in the HMRC "rules" but wanted to check so I dont get caught out.

Many Thanks

Eamon

silvercar

No, you don't have to be marketing your current property.

That said the rules could change at any point and the 3 year period could be reduced.

SDLT_Geek

Zacwhite said:

I am looking to move house and therefore purchase another property but intend to hang on to my existing one for a while.
I understand that, as a result, I will pay the higher rate of Stamp Duty as I will be seen for a time as owner of 2 homes.
I also understand that, as long as I sell the current main property within a 3 year period, I will be able to claim back a Stamp Duty refund.

The question I have is as follows ; I was looking at possibly renting out my current house for a couple of years and then selling but is there a requirement that I have to have my house actually on the market before I move into my new one ? ( I have not seen this in the HMRC "rules" but wanted to check so I dont get caught out.

Many Thanks

Eamon

I assume the property is in England, as you refer to HMRC.  Is that right?

Yes, the period to sell is three years.  There is no rule that prevents you from qualifying for a refund if the property is let out.  However, there is a risk that letting out the property will make it harder to complete the sale within three years.

There is also a risk that the 3% surcharge will be increased; they were on the cusp of increasing it to 4% a couple of years ago, that would match the extra in Scotland and in Wales.

badger09

Do you have a mortgage on your current property? If so, you will need the lender’s permission to let it. 

LegallyLandlord

The others have made some great points. Especially about rules changing. It’s possible even that with the renter reforms coming abolishing section 21 (no fault 2 month termination) you might not be able to terminate as easily. But a lot will depend on the precise wording of the new grounds under section 8. (I’ve put links below). 

If you do become a landlord, you’ll be what is called an “accidental landlord”, ie not buying to let. There’s a lot you need to be aware of. Someone mentioned the mortgage, which is v important. 

Here are some other tips for accidental landlords: https://theindependentlandlord.com/accidental-landlord-guide/

This is a guide to terminating under section 21 https://theindependentlandlord.com/resources/property-investors-glossary/section-21-notice/

This is the other route via section 8:
https://theindependentlandlord.com/resources/property-investors-glossary/section-8-notice/

Hope that’s helpful. 

Zacwhite

Thank you, your answers were very helpful. I have another question :

Following this weeks Autumn statement where the Chancellor reduced CTG exemption on rental property gains when selling - from £12,300 now to £6,000 next year and £3,000 in 2024, I have another question...

I have lived in my property for over 30 years and so it has increased in value by over £200k. I have never rented it out but I am looking at doing so in 2023.
My question therefore is : Would the gain in value be based on from when I start to rent it out rather than taking into account the enormous gain over the previous 30 years ? ( I hope the answer is YES ! )...

Many Thanks for any answers..

wilfred30

Depending on where you live i.e. a tourist hotspot, you might be affected by the plans to double the Council Tax payable on a second home/empty property (also in the Autumn Statement).

Although the tenant/s are normally responsible for paying the council tax, it depends on the type of tenancy it is but in any case, you would be responsible for paying it during any void periods.  Just something to bear in mind.

km1500

https://www.gov.uk/tax-sell-home/let-out-part-of-home

p00hsticks

Zacwhite said:

Thank you, your answers were very helpful. I have another question :

Following this weeks Autumn statement where the Chancellor reduced CTG exemption on rental property gains when selling - from £12,300 now to £6,000 next year and £3,000 in 2024, I have another question...

I have lived in my property for over 30 years and so it has increased in value by over £200k. I have never rented it out but I am looking at doing so in 2023.
My question therefore is : Would the gain in value be based on from when I start to rent it out rather than taking into account the enormous gain over the previous 30 years ? ( I hope the answer is YES ! )...

Many Thanks for any answers..

I'm not an expert but this is my understanding of how it works at present - hopefully people will correct me if I've got something wrong.

The capital gain is the price you sell at minus the price you paid (less buying and selling costs and certain other allowances for improvements if you;ve made any), but allowance is made for the proportion of time in ownership for which it was your principal private residence (PPR). The value is assumed to have risen at a steady rate across the whole time you've owned it.

So for example, if you bought it for £100k and sell it for £300k, your capital gain is £200k, less buying and selling costs - say £5k - giving a net gain of £195k.

However, if it was your PPR for 360 months and you rent it out for the next ten years (120 months), then when you come to sell the amount that you'll potentially pay capital gains on is only for the proportion of the total time it wasn't your PPR - you also get an additional 9 months allowance.

So CGT is potentially due on '£ gain x (time in months when its not your PPR) / (total time owned in months + 9)'

So in the example above; CGT liability on £195k x 120/(480+9) = appropximately £48,000.

 You have an annual CGT allowance which you can set against this if you haven't crystallised any other gains on the year - currently as you say £12,300, which would leave you paying CGT at your marginal rate on around £35,700 if you sold tomorrow. 

Of course in tem years time the gain may be larger or smaller, and the rules and/or allowances may have totally changed....

inkydolphin

So if you buy your next home before selling your current one (which has been your PPR for the whole time you owned it) and you don't rent it out, does that mean you are not liable for capital gains tax when you sell your current home? And you can claim the additional stamp duty back (as long as you sell within 3 years)? Or is it not that simple?

p00hsticks

inkydolphin said:

So if you buy your next home before selling your current one (which has been your PPR for the whole time you owned it) and you don't rent it out, does that mean you are not liable for capital gains tax when you sell your current home? And you can claim the additional stamp duty back (as long as you sell within 3 years)? Or is it not that simple?

You can only have one PPR at a time - so if you hang onto your current home for longer than the nine months grace period that the CGT rules allow after moving out of it, even if it's just left empty and not rented out, then theoretically there is a potential CGT liability. In practise, however, this is likely to be tiny and well within the annual CGT allwoance.