Stamp duty when consolidating equity for own home

crested_grebe · 3 April 2018 at 10:42AM

Hi,

Due to chronic health challenges the only way I could afford my 'forever home', which I am now buying, has been through building equity slowly in 3 small flats over a 20 year timescale...

Each has been my main home, and each has been let out, all income declared, and all tax paid. I am now gradually selling them to buy my 'dream' home, but even my accountant seems unsure about whether I need to pay the 3% extra stamp duty!! Can someone help clarify this please?

3 years ago I was particularly ill, and so concerned about parents' declining health so I bought a small house next to them, over 100 miles from where I'd lived for decades and owned the 3 flats. I was so ill it took me over a year to move in, and in that time, (Sept 2016) I sold one flat whilst it was my main residence. (The small house was purchased Spring 2015, before the new SDLT rules.)

The small house, declared as my main residence since Sept 2016, was always going to be a temporary move to give me breathing space to try and build my health back up and decide/find where I wanted to live long term.

I have now found a new house for myself, to be my permanent home, for just over £400 000. So a hefty extra £12k STLT if I have to pay the extra 3%.

In order to afford it I need to sell one of the other properties, simultaneously (or very soon after) but have chosen to keep the new-ish small house as it would make the perfect downsize for one or both parents OR I could move back into it myself if my health deteriorates and I need to downsize (I have often been house/bed-bound, and as I get older there's a strong possibility I will need personal care...and have no other family to support me, and the stress of buying/selling/moving is something I need to minimise, but I am hopeful I can have a good 10 years in a house I love at last!)

So I am selling one flat I lived in for 9 out of 12 years I owned it, and am considering moving back there until it sells, for a number of reasons, which could easily take several months. (I plan to keep the last remaining flat, which was my first home by myself, long term as an income source as there'd be little equity left after paying CGT.)

My understanding of the new SDLT rules for owners of more than one property is that you don't pay the extra 3% if you are selling your own home and moving straight into your new main home.

BUT there is also a 3 year window either side of selling the old main home and buying the new main home, so you have to pay the extra 3% upfront and claim back once a previous main home is sold within 3 years OR you don't pay the 3% if you're replacing a previous main home sold up to 3 years earlier with a new main home. Is this correct?!

SO. Because I sold a previous main home under 3 years ago, does this mean I am exempt from the 3% on the new home (despite nominating a subsequent owned property as my main home temporarily?)

...and/or...would selling the 2nd previous main home, the flat, simultaneously with the purchase of my new home initiate a *further* 3 year window of reduced STLT obligation for the new home to become my main residence (finances are so tight I need to consider whether I can let the new permanent home out initially!!)

This is a genuine attempt to secure my permanent new home and my concern is that I may be penalised for needing to take the time to sell 2 properties which meant my current home was always a temporary move (but I now realise it makes practical and financial sense for me to keep the temporary home and let it out)?

As I understand it the 3 year windows are to allow some flexibility if a temporary home is needed whilst organising the sale of a previous home, but what happens when the transition is a tad more complex, but genuine, due to health and other circumstances?

I am hoping I can legitimately purchase the new house and not pay the 3% up front if I am able to complete the other sale to allow enough deposit to port my existing personal mortgage to the new home. Is that correct?

BUT I may need to purchase my new home on a BTL mortgage if there is a delay in selling the other flat as my income is so low...which I assume will stop me claiming it as my new home until I can remortgage on to a smaller personal mortgage once the flat sale has gone though...so would that mean I have until Sept 2019 (3 years from the first flat sale) to make that my new home (and claim back the 3%) OR would I have 3 years timescale from the sale of the 2nd flat (if it were my main residence at the time of sale)?!!

Is this something the IR would be able to give guidance on?!!

many thanks

TamsinC · 3 April 2018 at 10:53AM

You will own more than one property so the simple answer is yes

and to clarify - what he says below

AdrianC · 3 April 2018 at 10:57AM

So let's cut through that to the meat.
You currently own some flats and a house.
You live in the house, and let the flats.
You want to buy a different house, which will be your primary residence.

You plan to sell the let flats and let the house.

So, yes, you will pay the +3%. You are not selling your former primary residence.

It's that simple.

The let flats are irrelevant. They can be totally ignored.
If you were simply changing your former primary residence for the new one, selling it in a chain, then you wouldn't pay the +3%.
If you sell that former primary residence within 3yrs of the purchase of the new primary residence (so 2021ish), you will get the +3% back.

crested_grebe · 3 April 2018 at 12:58PM

Thank you both, however I'm still confused. I can't help feeling it's not quite that simple?! Would really appreciate your assistance finding a sense of clarity on this, thank you

I HAVE already sold A former primary residence, which was designated my primary residence at the time of the sale. So doesn't that already give me 3 years to purchase a NEW primary residence, i.e. the new house? The slightly unorthodox aspect being that I moved into a different property which I happened to already OWN during the transition period from one primary residence to another.

The SDTL rules seem to be in place to allow people to take up to 3 years to secure the purchase of the property they wish to live in permanently presumably by renting temporarily while their former residence sells, or allowing them to purchase their new one up to 3 years before selling their previous home? In the latter case they could
be letting their previous home out for up to 3 years whilst owning more than one property....so I would contend that the same time period should apply to me too?

If for some reason that logic doesn't hold, then
would moving back into my former primary residence, the 2nd flat, allow me to legitimately purchase the new home without the extra 3% upfront if that completed as part of a chain...or allow me to claim it back subsequently if it can't be sold in time to complete simultaneously?

TamsinC · 3 April 2018 at 1:46PM

I believe you can reclaim the extra stamp duty paid if you sell the former primary residence within 3 years - not you don't pay it in the first place.

From the YOUGov website - 'You wont have to pay the higher rates if you sell your main home on the same day you buy your new home.

If you sell your main home after you purchase your new home youll need to pay the higher rate. You can claim a refund of the higher rates if your old home is sold within 3 years of buying your new home.

You can claim a refund by changing the original return or completing a SDLT repayment request form. This must be claimed within 3 months of the sale or 1 year of the filing date of the return, whichever comes later.'

there are also rules about length of time of living in a property to make it a primary residence - it's not just a case of saying - this is now my home - and of course you need to look at Capital Gains tax then as well, as you will have let that home out. There is loads of info on YouGov.

SDLT_Geek · 3 April 2018 at 4:48PM

I disagree with AdrianC and TamsinC. You are likely to escape the 3% surcharge based on the detailed requirements of the replacement exception if your purchase is to complete by 26 November 2018.

Will you complete by that date? Let me know and I will explain a bit more about the 3 year rules where a sale of a former home completes before the purchase of a new one and the transitional provisions which apply.

Even better, choose a conveyancer with SDLT expertise available.

crested_grebe · 3 April 2018 at 5:15PM

Thank you both for the two new responses. Yes, I am aware of CGT and paid over £25k of it selling the last flat due to it having been partly my home/part let out.

Yes, I anticipate that the new purchase will complete before November 2018. Ideally I will be completing on the sale of the flat on or before the date of completion on the new home, then I can purchase that directly on a personal mortgage (hopefully by porting my existing one and remortgaging the small house to BTL).

However if it looks like the sale of the flat is taking too long for the vendor of the 'forever home' (who has experienced similar health challenges so ironically a relatively flexible timescale suits us both) I need to switch to plan B and initially secure the home on a BTL mortgage (on which I can borrow more) and then remortgage once funds have been release from the sale of the flat to allow me to port the smaller existing private mortgage.

I would be extremely interested and grateful to hear about the implications of the November deadline and the 3 year rule, thank you, SDLT Geek! Also any recommendation of a conveyancer experienced in the SDLT field, as the one solicitor I have spoken to thus far also seems pretty confused by the issue!!

SDLT_Geek · 3 April 2018 at 5:49PM

There is an explanation of the replacement exception here: https://www.zoopla.co.uk/discover/buying/stamp-duty-land-tax-3-surcharge-replacement-of-an-only-or-main-residence-and-the-all-important-three-year-rule/ and the article linked from it.

This explains that a buyer who completes a sale before (or on the same day as) the purchase would escape the surcharge for a purchase by 26 November 2018 if the following conditions (paraphrasing the wording of the legislation) are met:

(a) On completion of the purchase of the new home the buyer intends to live in the new home as the buyer’s only or main residence
(b) in a transaction on the same date or earlier than the purchase of the new home the buyer (or the buyer’s spouse or civil partner at the time) disposed of a major interest in another dwelling (“the sold dwelling”)
(c) at any time before completion of the purchase of the new home the sold dwelling was lived in as the buyer’s only or main residence
(d) at no time on or after the disposal of the sold dwelling has the buyer (or the buyer’s spouse or civil partner) acquired a major interest in any dwelling with the intention of the buyer living in it as their only or main residence.

A new condition added for purchases from 22 November 2017 is that all of the interest in the sold dwelling is disposed of before the purchase.

Here you have several sales that might be the golden ticket to get your purchase into the replacement exception.

It is all change though if you complete your purchase after 26 November 2018. Three year rules come into play, including the requirement that you last lived in the sold dwelling as your main residence in the three years leading up to the completion of the purchase of your new home.

crested_grebe · 3 April 2018 at 8:59PM

oh thank you, SDLT Geek, you're a star!! I will have a proper look at the full reference tomorrow, brain fog descending now! But on first glance it looks like I already qualify for exemption so long as I intend to live in the new home (having already disposed of a previous main home) if the purchase completes by 26th Nov 2018.

(Wondering do I have to move in immediately, or does *intend* followed up by definitely moving in (for years!) give some flexibility time-wise as the house needs work before I can move in, plus it would keep open the possibility of purchasing quicker on a BTL (then remortgaging soon after) if the sale of the other hasn't released enough funds in time...hope the original wording clarifies this!)

Alternatively, if the purchase completes AFTER 26 Nov 2018 (but before June 2019), then I have actually lived in both the already sold one, and the one being sold within the past 3 years...but not for the ENTIRE 3 years, so again hoping they specify whether part or entire 3 years is needed!)

I think?!! No wonder the accountant decided to pass on this one!

pzizz15 · 3 April 2018 at 11:16PM

I have a similar question but I'm not sure how I start a new post. My mum gave me and my siblings a house a few years ago, which none of us live in (it is currently being done up to be sold but won't be ready for a while). I currently live in rented accommodation with my husband who is a first time buyer and we have just had an offer accepted on a house which we intend to live in as our forever home. Does anyone know what stamp duty we will have to pay? As far as I know, we won't be eligible for any first time buyer reductions as only my husband qualifies but I don't know about the 2nd home charge. I'm hoping we won't have to pay this as it is unoccupied and not rented out. If not, I may have to have my name removed from the deeds of the other house as that will be considerably cheaper than the additional charge.

00ec25 · 4 April 2018 at 8:22AM

zoefox565 wrote: »

I have a similar question but I'm not sure how I start a new post. My mum gave me and my siblings a house a few years ago, which none of us live in (it is currently being done up to be sold but won't be ready for a while). I currently live in rented accommodation with my husband who is a first time buyer and we have just had an offer accepted on a house which we intend to live in as our forever home. Does anyone know what stamp duty we will have to pay? As far as I know, we won't be eligible for any first time buyer reductions as only my husband qualifies but I don't know about the 2nd home charge. I'm hoping we won't have to pay this as it is unoccupied and not rented out. If not, I may have to have my name removed from the deeds of the other house as that will be considerably cheaper than the additional charge.

have you read the FAQ of the guide?

https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties

you are married, the couple is therefore one "unit" and owns a property already (the one you have never lived in yourself and will be personally liable for Capital Gains Tax on when you sell it or have your name removed from its deeds)

the couple intends to purchase an additional property which means it will then own 2 properties. The couple will not be selling a property it currently uses as a main home, nor one it has ever used as a main home. Therefore no "replacement" of a main home will take place

please understand that it is the replacement of a main home which is the only factor that matters, not whether the property is empty, let, used as a second home by you, or occupied free of charge by your relatives.

the higher rate will apply as explained most simply in the FAQ on page 26

Q2.
I currently live in rented accommodation but own a property that is rented out. I am now looking to purchase my first home, for me and my family to live in. Will I have to pay the higher rates of SDLT on this purchase?
A2.
Yes, the higher rates of SDLT will apply as following the purchase you will own an additional residential property and will not have replaced your main residence

PLEASE READ BEFORE POSTING

Stamp duty when consolidating equity for own home

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free