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andrewilley
Posts: 16 Forumite
We are looking to purchase a new family home for myself, my wife and my daughter (aged nearly 18) to live in as our primary residence. Currently we are considering keeping our old property to generate an ongoing rental income, but at first glance this seems to bump an £11,500 stamp duty fee up to nearer £25,000. At least Mr Richard Turpin (Highwayman) had the decency to wear a mask! 
We had already been considering gifting ownership of the capital value of our old house to my daughter anyway (thinking mainly about subsequent inheritance issues etc) but I have no idea how that would work in this case, or of any other costs, tax repercussions, or later implications involved. I obviously am aware of the potential situation if there was ever to be a major family falling-out in the future, but we feel we are willing to take the risk that we brought her up to be a decent human being.
Thoughts? Is this an option that is at least worth investigating?
Andre
We had already been considering gifting ownership of the capital value of our old house to my daughter anyway (thinking mainly about subsequent inheritance issues etc) but I have no idea how that would work in this case, or of any other costs, tax repercussions, or later implications involved. I obviously am aware of the potential situation if there was ever to be a major family falling-out in the future, but we feel we are willing to take the risk that we brought her up to be a decent human being.
Thoughts? Is this an option that is at least worth investigating?
Andre
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Comments
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andrewilley wrote: »We are looking to purchase a new family home for myself, my wife and my daughter (aged nearly 18) to live in as our primary residence. Currently we are considering keeping our old property to generate an ongoing rental income, but at first glance this seems to bump an £11,500 stamp duty fee up to nearer £25,000. At least Mr Richard Turpin (Highwayman) had the decency to wear a mask!
We had already been considering gifting ownership of the capital value of our old house to my daughter anyway (thinking mainly about subsequent inheritance issues etc) but I have no idea how that would work in this case, or of any other costs, tax repercussions, or later implications involved. I obviously am aware of the potential situation if there was ever to be a major family falling-out in the future, but we feel we are willing to take the risk that we brought her up to be a decent human being.
Thoughts? Is this an option that is at least worth investigating?
Andre
If you gift your current property to your daughter when she turns 18 then the property will generate a rental income for her, not you. She will also miss out on government incentives such as the LISA bonus towards the purchase of her first property, the SDLT relief for FTB and in fact will be hit with the higher rate of SDLT when she eventually buys her own home.
Unless the plan is that she will become the legal owner of the property and you remain the beneficial owner but that won't help you avoid the higher rate of SDLT.
Stamp duty land tax: Higher rates for purchases of
additional residential properties
** I have assumed that there will be no mortgage secured against your current home.0 -
So somewhat more complicated than it first seemed then. If my daughter becomes the technical legal owner of our original house by way of a gift, we would not then be able to arrange between ourselves for any rental income to be of benefit to my wife and myself, it would need to be counted as my daughter's income for tax/etc purposes. Sounds potentially more complicated than it's worth.
Andre0 -
She is either the owner or not ..... she can't be a "technical legal owner" just so that you can avoid tax.
She would have to declare any rental income on a tax return and have all the consequences of the issues and impacts on her own future status as a buyer as mentioned above. Does she want be a landlord (with all the legal responsibilities that entails ) ?
Either sell the 1st house, or pay the higher stamp duty ( the 2nd home rates have been around a while now, shouldn't have been a shock to you).0 -
Depending on where you are in the UK, you have a certain length of time to sell the first property after buying the second to live in as your main residence, when the additional 3% Stamp Duty paid can be reclaimed. In England it is 3 years, Scotland 18 months. Not sure about Wales and NI.
If you want to have a rental property to generate income, it may be that selling property one, and using some of the proceeds to purchase a cheaper house for rental might be an option. Clearly, you would have to pay the additional 3% Stamp Duty.
Another option would be to consider gifting some cash to your daughter so that she could buy a house for herself, and she in turn (if a FTB) will benefit from the stamp duty rules for first time buyers. If it is her main residence, she won't be liable for the 3% surcharge.0 -
That all sounds like good advice everyone, thank you.
Even though we were thinking about gifting our old house to my daughter at some stage anyway, it would seem to be a lot more complex and convoluted (especially for her) to do it now rather than just swallowing hard and accepting that because we will continue to own an older, and much smaller, property then the stamp duty on our new purchase more than doubles (from £11,500 up to £24,400 - how can that be right?) . I certainly didn't see that one coming anyway!
Last time, when we bought our current house about 20 years ago, stamp duty didn't come into the equation at all as our price was under the threshold, but I had checked at the time and it would have been a simple 1% fee even if our house had been quite a lot more expensive. I assumed it would have changed a bit since then, but the current rates are far beyond what I was expecting!
I wasn't trying to rip the government off, more trying to stop them ripping me off but it seems they've got you pretty much every way. Given the magnitude of the tax bill, we might decide to just sell our old property within the 3 years anyway and recoup the loss.
Thanks again for everyone's help,
Andre0 -
The law on second properties has been quite well publicised. In anycase you are aware of it now, so you can make an informed decision.andrewilley wrote: »That all sounds like good advice everyone, thank you.
Even though we were thinking about gifting our old house to my daughter at some stage anyway, it would seem to be a lot more complex and convoluted (especially for her) to do it now rather than just swallowing hard and accepting that because we will continue to own an older, and much smaller, property then the stamp duty on our new purchase more than doubles (from £11,500 up to £24,400 - how can that be right?) . I certainly didn't see that one coming anyway!
Last time, when we bought our current house about 20 years ago, stamp duty didn't come into the equation at all as our price was under the threshold, but I had checked at the time and it would have been a simple 1% fee even if our house had been quite a lot more expensive. I assumed it would have changed a bit since then, but the current rates are far beyond what I was expecting!
I wasn't trying to rip the government off, more trying to stop them ripping me off but it seems they've got you pretty much every way. Given the magnitude of the tax bill, we might decide to just sell our old property within the 3 years anyway and recoup the loss.
Thanks again for everyone's help,
Andre0 -
Presumably this will free up the old property for a first time buyer (as you were) - precisely the point of the policy.0
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Gabbs_the_Newt wrote: »Presumably this will free up the old property for a first time buyer (as you were) - precisely the point of the policy.
No the point of the policy was to raise tax. Nothing to do with first time buyers because there was never any guarantee that any of the properties bought as second properties were going to be affordable by first time buyers if sold instead.0 -
I have nothing to add as an advice but I share the frustration of having to pay a rather substantial chunk of your hard earned money as a tax which to me seems to be designed to discourage owning more than one property and punish the hard working folks.
Your SDLT of £25K somewhat makes me feel less worse about the £10K I am having to pay.Nothing is more damaging to the adventurous spirit within a man than a secure future. - Alex Supertramp0 -
The_Palmist wrote: »to me seems to be designed to discourage owning more than one property
Yes. That's the whole point.0
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