Own 2 properties, buying a new build - CGT and Stamp Duty?

pencekeeper3

Hi there

I own my own house, and also a few years ago bought house for parents to live in (I never lived there, they don't pay rent and are not legal tenants)

I'm buying a new build house for my main residence due to complete late this year.

Rather than sell my current main residence before I move, I'm hoping to just move taking a few weeks when new property ready, then sell current asap.

I'm aware there are time limits and things to avoid being liable for higher rate of stamp duty for buying new home, and also CGT that could apply to current home.

I did have a go at reading the HMRC docs, but got a little confused and didn't help that I already own 2 properties and would temporarily be owning 3 at once.

Can anyone give any guidance?

Thanks!

_Penny_Dreadful

pencekeeper3 said:

Hi there

I own my own house, and also a few years ago bought house for parents to live in (I never lived there, they don't pay rent and are not legal tenants)

I'm buying a new build house for my main residence due to complete late this year.

Rather than sell my current main residence before I move, I'm hoping to just move taking a few weeks when new property ready, then sell current asap.

I'm aware there are time limits and things to avoid being liable for higher rate of stamp duty for buying new home, and also CGT that could apply to current home.

I did have a go at reading the HMRC docs, but got a little confused and didn't help that I already own 2 properties and would temporarily be owning 3 at once.

Can anyone give any guidance?

Thanks!

Assuming you're in England where the relevant tax is SDLT you will pay the higher rate of SDLT for purchasing an additional residential property.  The good news is that providing you sell your current main residence within 3 years of completing the purchase of your new main resident you can claim back the additional SDLT paid.

Given the timescales involved CGT is extremely unlikely to be an issue.

pencekeeper3

Yes England.

I'm keen for the tax system not to classify me buying or selling from one main residence to the next as liable for higher taxes due to second (third) home.

I was under the impression that I had to sell my current home much quicker than 3 years to avoid higher stamp duty (not an issue to pay higher if can be refunded)

_Penny_Dreadful

pencekeeper3 said:

Yes England.

I'm keen for the tax system not to classify me buying or selling from one main residence to the next as liable for higher taxes due to second (third) home.

I was under the impression that I had to sell my current home much quicker than 3 years to avoid higher stamp duty (not an issue to pay higher if can be refunded)

In your situation the property your parents reside in is irrelevant as the intention is for you to replace your main residence.

I can only go by the words on the page and the HMRC manual says 3 years.

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800

RAS

There are landlords who own multiple companies. They do not get stung for enhanced CGT when they replace their primary residence. They can also sell their primary residence, without CGT being being charged.

If they buy a new primary residence before moving out of the old one, they pay but can reclaim the additional SDLT cost as long as they sell the old primary residence within 3 years.  No CGT to pay if the old house is sold within 9 months, and only a limited amount in the year afterwards if the tax is less than the annual allowance.

Bookworm225

pencekeeper3 said:

Yes England.

I'm keen for the tax system not to classify me buying or selling from one main residence to the next as liable for higher taxes due to second (third) home.

I was under the impression that I had to sell my current home much quicker than 3 years to avoid higher stamp duty (not an issue to pay higher if can be refunded)

the time lines are set in stone as there are only 2 options

OPTION 1
sell current main residence on the same day (or before) as you complete on the purchase of the new home and you will pay standard rate SDLT on the purchase. This is because you are disposing of a main home (ongoing ownership of parents house is irrelevant)

OPTION 2
sell current main residence after you complete on the purchase of the new home and you will pay higher rate SDLT on the purchase (ongoing ownership of parents house is irrelevant). How long it takes you to sell does not alter the fact you will pay higher rate, next day or 10 years later, you will still pay higher rate


If option 2 applies then HMRC makes life more interesting by allowing you to avoid physically paying the higher rate in a specific circumstance (which is where you may be thinking of "shorter" timescale)
Read this rather than me type it out:
SDLTM09805 - SDLT - higher rates for additional dwellings: Condition D - paying the higher rates of SDLT - HMRC internal manual - GOV.UK

If you fail that test then the default is the sale of old residence within 3 years of the purchase completion date of the new main home means you can apply for a refund of the higher rate, so the purchase will have cost you the net standard rate.
Take more than 3 years to sell and you will never get a refund. 

SDLTM09809 - SDLT - higher rates for additional dwellings - Condition D - claiming a refund - HMRC internal manual - GOV.UK

SDLT_Geek

pencekeeper3 said:

Yes England.

I'm keen for the tax system not to classify me buying or selling from one main residence to the next as liable for higher taxes due to second (third) home.

I was under the impression that I had to sell my current home much quicker than 3 years to avoid higher stamp duty (not an issue to pay higher if can be refunded)

Unless you can sell the old home within a few days following the purchase of the new home, you will have to pay the extra 5% SDLT on the new home.  

You can recover the extra 5% if you sell the old home within three years.

pencekeeper3

Thanks so much everyone for your kind comments.

That's put my mind at ease