Temporarily owning a second property - additional tax

mither_2 · 9 July 2017 at 3:04PM

Hello,

I currently own a property that I have tenanted until next Summer. Whilst renting this out I am renting a flat in London. I moved here for work purposes and likely won't be returning to the area where the property is located.

I would now like to buy a property in London. I am fortunate enough to have the required deposit and a mortgage offer without having to sell the rental property. However, I will need to sell the rental property as soon as the fixed rate mortgage and the tenancy expires.

I don't want to sell the rental property now as I'll have to pay x£k in early termination costs on the fixed rate mortgage and would have to sell to a landlord as the property is tenanted. This would limit the potential buyers which I clearly wouldn't want to do.

At the same time I understand that by buying another property I will temporarily be a second home owner and this will mean that I need to pay additional stamp duty of £13,500 (£26,000 rather than £12,500 on an expected purchase price of £450,000).

Neither option is very appealing but I wonder if there is any way around this?

Can I pay the additional stamp duty cost and then reclaim in from the inland revenue when I sell the other property?

I would assume that this happens regularly elsewhere as people may wish to avoid being part of a chain when buying etc.

Any ideas would be really appreciated.

Thanks in advance

da_rule · 9 July 2017 at 3:12PM

As long as you sell your first property within 3 years of buying the new one you can reclaim the extra stamp duty.

https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties

mither_2 · 9 July 2017 at 3:27PM

Thank you for helpful link.

Does anyone have any experience of this?

Potentially I could buy my residential property to live in in September 2017 and then have up to September 2020 to sell the rental property and then reclaim the additional tax paid.

This would mean that I could buy and then wait and see what happened with the market and take up to 3 years to sell the rental property?

How would this affect possible capital gains tax on selling the rental property? I am not a professional landlord and this is the only property that I own currently. If I was selling the property and then using the funds on the new property I would not be liable for CGT on the profit that I made on the property but because its a rental and I am buying and selling in an unusual order I suspect that I will be? I think its around 20% of the value and so this it could be £16k if I made a £80k increase in value.

My understanding is that if I lived in the rental property for a short period of time before selling the property I could avoid paying this CGT? Is this still correct?

How can I go about reducing my tax bill?

Thanks

00ec25 · 9 July 2017 at 4:21PM

mither wrote: »

Thank you for helpful link.

Does anyone have any experience of this?

Potentially I could buy my residential property to live in in September 2017 and then have up to September 2020 to sell the rental property and then reclaim the additional tax paid.

please read links given to you before commenting further

3.19A For purchases on or before 26 November 2018, there is a replacement of a main residence if, at any time before the purchase, the purchaser, or their spouse or civil partner, disposed of a major interest in another dwelling and the purchaser has not purchased another main residence in the period between that disposal and the new purchase. That other dwelling must have been, at some time, the only or main residence of the purchaser.
3.20 For purchases on or after 27 November 2018, there is a replacement of a main residence if, in the three years ending with the purchase, the purchaser disposed of a major interest in another dwelling and that other dwelling was, at some time in the three year period, the only or main residence of the purchaser.

mither wrote: »

How would this affect possible capital gains tax on selling the rental property? I am not a professional landlord and this is the only property that I own currently. irrelevant, you will own more than 1 property at the same time. That is all that matters If I was selling the property and then using the funds on the new property I would not be liable for CGT on the profit that I made on the property correct but because its a rental and I am buying and selling in an unusual order I suspect that I will be? no, it's because you own 2 properties and am selling the one that is no longer your main homeI think its around 20% of the value and so this it could be £16k if I made a £80k increase in value. rubbish

My understanding is that if I lived in the rental property for a short period of time before selling the property I could avoid paying this CGT? Is this still correct? totally incorrect

How can I go about reducing my tax bill? by claiming private residence relief, letting relief and your personal CGT allowance

posting what you "think" before you have done basic research wastes everyone's time

https://www.gov.uk/capital-gains-tax/overview

https://www.gov.uk/government/publications/rates-and-allowances-capital-gains-tax/capital-gains-tax-rates-and-annual-tax-free-allowances

https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

G_M · 9 July 2017 at 5:14PM

da_rule wrote: »

As long as you sell your first property within 3 years of buying the new one you can reclaim the extra stamp duty.

https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties

Only if the property being sold within the 3 years is the OP's main residence.

It isn't. It is let out and OP's main residence is elsewhere.

OP cannot reclaim the additional 3% SDLT.

mither_2 · 10 July 2017 at 11:55AM

Thanks for all the helpful responses. As you can tell I've only just started my research and everything is even more complicated than I expected.

If I moved back into that house for a period of time would this allow me to reclaim the additional 3%?

Are there any other ways to avoid/reclaim this additional tax?

Thanks again

G_M · 10 July 2017 at 2:32PM

Moving back in is an option.

However, it is a question of 'fact' whether the property has genuinely become your main residence. There is no clear definition (eg live there for 1 week, 1 month, 6 months).

HMRC would look at all the circumstances (assuming they investigate) and reach a conclusion based on all the facts.

They might conclude it had become your main residence, you then sold it, so could reclaim the SDLT.

They might conclude you had gone through the motions in order to attempt to avoid the tax, and that your 'main residence' claim was simply a ploy.

mither_2 · 11 July 2017 at 2:14PM

Thanks for the advice from everyone. This is really appreciated.

I won't be able to sell the property before buying another property so will have to pay the additional £xk in stamp duty and then hope that I'll be able to reclaim it in later years.

Moving back in for a period of time seems like my only option as the financial benefits of avoiding capital gains tax and reclaiming the additional stamp duty paid make it worth trying.

The other option is to put off buying a new property in London until early next year or bring forward the sale of the current property.

What happens in the event that the sale of the original property is delayed slightly so that it may occur after the purchase of the new property so that I own two properties for a period of weeks (for example).

When purchasing the new property I won't be in a chain (therefore not reliant on selling first) and so this is a definite possibility.

How would the HMRC know about this brief period?
Is there any flexibility here?
What is the process for the HMRC claiming these additional funds?

Thanks

Pixie5740 · 11 July 2017 at 2:18PM

Did you read the information in the links you were given because your post above would imply that you haven't.

PLEASE READ BEFORE POSTING

Temporarily owning a second property - additional tax

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