How much Stamp Duty would a landlord living with their parents pay?

71058

Hello everyone. I'm unsure as to what amount of Stamp Duty I would pay in the following situation and I'm hoping someone more informed than myself could enlighten me.

Let me begin by telling you my current circumstances and my original plan for the next 6-24 months...

I have a residential mortgage on my property with a fixed term that is due to end late 2025. The Loan to Value will be approximately 35% around this time.

My wife is currently pregnant and our first child is due in the Summer.

The plan was for me and my wife to move in with my parents after the baby was born, and change our residential mortgage to a Buy To Let. We would then look at buying a family home closer to my parents over the following year or so.

The benefits of this arrangement are that...

- We would obviously be closer to family which would please everyone involved and be a big help. We are family-orientated and want our child to grow up with grandparents/aunties/uncles, although we're not a million miles away currently.
- We would be able to save up more money as our living costs would be much lower.
- We wouldn't be rushed in searching for a new family home, we could see what happens with interest rates, and when we find a home, we could act fast from not being in a chain.
- My parents house is more suited to raising a small child as it is more rural, has a garden, and doesn't have big steep steps like our current home.

The reasons for not wanting to sell our current home is that we feel it would just be a good investment in general, as the property is in a central location and the overall risk seems low with the mortgage balance being relatively low. I've let out a property in the past so I do know what I'm doing for the most part. I would use a letting agent. I know a lot can change in 10 years as well, but it is also in the catchment area for a really good high school, so potentially we could look at moving back here once our child is older.

Now, as for the Stamp Duty, let's say for arguments sake that the purchase price of the property we find is £300,000 and we buy it on the 1st of December 2025.

If we answer 'No' to 'Replacing main residence' then the amount of Stamp Duty is £20,000.

If we answer 'Yes' to 'Replacing main residence' then the amount of Stamp Duty is £5,000.

I'm not sure technically which one would be applicable in this situation, as at this point we would have no residential mortgage, but we have had one previously. Me and my wife both like the plan, but probably not enough to justify paying an extra £15,000 for if we have to.

I know we have the option of selling our home, and then buying one closer to my parents, but this seems like it would be more stressful with a baby as my belief is that moving, some redecorating before selling, and viewings etc. would have to happen with much more urgency, which we don't want. However I'm aware that moving out and getting our home ready for BTL wouldn't be stress-free either.

I'm curious to know what level of Stamp Duty we would pay, and if there is anything else I might have naively overlooked in my plan. Thanks!

user1977

You’re not “replacing” your main residence for SDLT purposes unless you sell your previous main residence. It would be a rather wide loophole if it just meant “moving into the new property”.

EssexHebridean

You already own a property, therefore the higher rate of stamp duty is applicable. 

Be VERY sure that you want to become landlords, too. I don't think it's to much of a stretch to suggest that it is only going to get harder over the next few years to persuade tenants to leave as and when you want them to - so you could come to a point where you want to move back to your other property, but aren't able to. 

Bookworm105

SDLT is not about what mortgages you have or what type they are
SDLT is about how many properties do you OWN in legal terms

you will own one and will be buying an additional property so will own 2 
the additional rate SDLT applies to the purchase of additional property!

"replacing" main home means ceasing to be its legal owner - that means sell it !

saajan_12

71058 said:

Now, as for the Stamp Duty, let's say for arguments sake that the purchase price of the property we find is £300,000 and we buy it on the 1st of December 2025.

If we answer 'No' to 'Replacing main residence' then the amount of Stamp Duty is £20,000.

If we answer 'Yes' to 'Replacing main residence' then the amount of Stamp Duty is £5,000.

I'm not sure technically which one would be applicable in this situation, as at this point we would have no residential mortgage, but we have had one previously. Me and my wife both like the plan, but probably not enough to justify paying an extra £15,000 for if we have to.

You're not replacing your main residence regardless of how you time it. The mortgage and where you live are irrelevant since you're not selling anything. It'll be 20k assuming the rules don't change by then. 

71058 said:

..The Loan to Value will be approximately 35% around this time.

The reasons for not wanting to sell our current home is that we feel it would just be a good investment in general, as the property is in a central location and the overall risk seems low with the mortgage balance being relatively low. I've let out a property in the past so I do know what I'm doing for the most part. I would use a letting agent. I know a lot can change in 10 years as well, but it is also in the catchment area for a really good high school, so potentially we could look at moving back here once our child is older.

..
I know we have the option of selling our home, and then buying one closer to my parents, but this seems like it would be more stressful with a baby as my belief is that moving, some redecorating before selling, and viewings etc. would have to happen with much more urgency, which we don't want. However I'm aware that moving out and getting our home ready for BTL wouldn't be stress-free either.

I'm curious to know what level of Stamp Duty we would pay, and if there is anything else I might have naively overlooked in my plan. Thanks!

Whether to move in with family should be more about whether thats the right thing for your household, it can vary massively. Some people prefer to be settled in a house when baby arrives so routines and the baby paraphernalia etc are easier to manage. Others prefer having family in house (whether that's at your house or theirs) for on hand help. 

You could always move in with family and then into a new house but then sell the current house soon after, so you get the extra stamp duty refunded - basically I'm trying to say the two decisions don't have to be linked. 

Re whether you retain the current property as an investment - that really depends on whether you think the value will increase and the rental income each year will be high relative to the current value. A property being in a good location could already be priced into the value and so not result in much further profit. Selling could mean that you either lower your mortgage cost on the new property by increasing your deposit, or could invest in something else eg diversified stocks & shares. You'd already start at 15k better off from the stamp duty. 

71058

Thank you for all your replies, it's been very insightful. It's given us a lot to think about, but I'm leaning more towards the idea of keeping our current house and making the decision to sell within 3 years to claim back to Stamp Duty, should we feel that's the better option at the time.

km1500

Yes you can normally  claim stamp duty back if you sell within three years but just check that if you let it in those three years then you can still do it

It may be that getting a buy to let mortgage and letting out the property changes its status

GDB2222

71058 said:

Thank you for all your replies, it's been very insightful. It's given us a lot to think about, but I'm leaning more towards the idea of keeping our current house and making the decision to sell within 3 years to claim back to Stamp Duty, should we feel that's the better option at the time.

Bear in mind that it’s difficult to time the sale. You may ask the tenant to leave, but they may decide to stay on. So, you can’t really let it for three years then sell. The government has said that they will give tenants greater rights, and we have yet to hear any details. 

You would need to start the sale process at around 2 years. It’s quite a learning curve to go through just to be a landlord for two years. And you’re going to have to have lots of months with the property not producing income.  A typical sale takes six months, and it’s difficult to sell a tenanted property, even if the tenants say they are willing to leave. After all, they have no obligation to tidy the place up for viewings, etc. 

Of course, you can sell with the tenant in the property, but that’s a very limited market, and you may take a pasting on the price. 

sheramber

If you let the house you will pay tax on any rental profit and may have to pay  Capital Gains Tax on any gain in the value. 

caprikid1

"Thank you for all your replies, it's been very insightful. It's given us a lot to think about, but I'm leaning more towards the idea of keeping our current house and making the decision to sell within 3 years to claim back to Stamp Duty, should we feel that's the better option at the time."

It will probably be impossible to get the numbers to work over 3 years to be honest.

BTL for such a small time period is unlikely to plus the risk of not hitting the deadline, the extra costs of the larger mortgage needed.

It really is just pointless doing this for 3 years on one property. By the time you redecorate, re-carpet, get the garden etc back up to together etc.

Sell and enjoy a lower mortgage and less hassle or a bigger house.