stamp duty question on rental property vs own property

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    stamp duty question on rental property vs own property

    Dear Forum members

    I've joined the forum with a specific (initial!) question in mind. it's the ever thorny issue of the dreaded stamp duty (SDLT) and how it applies to rental property.

    My situation is this:

    My son owns no property currently (he rents where he lives), and has no plan, right now, to buy (can't afford where he wants to live!)

    If he buys a property he can afford, and rents it out, I appreciate he will have to pay SDLT on the purchase price (he won't get the First Time Buyer exemption as he does not plan to live in the property himself)

    BUT, if he were subsequently to buy a property for himself, for him to live in, will he then have to pay Second home SDLT (ruinous rate!) on that property, simply on the grounds that he already owns a property (albeit a rental one) (unless, of course, he were to sell the first, rental property, and so only pay the standard 'next property' SDLT)

    Will it make any difference if the initial property he buys has a 12 month holiday rental restriction on it, so it cannot be used for long-term residential leases, but only FHL furnished holiday lets? (I ask because after all, he could never use this FHL property as his 'own home' as it has a non-residential restriction on it).

    I have a bad, bad feeling that HMRC will hammer him for 2nd home SDLT if he buys his own home after buying ar rental property, even if his first property is either BTL or FHL.


    I know a friend of mine who bought a BTL property AFTER she already owned her own home (before the days of the extra hike in 2nd home SDLT), and then when she sold her own home and bought another, she did NOT have to pay 2nd home SDLT, even though she still owned the rental property, as she was replacing her own residential home so the fact she still owned a rental property was 'discounted'.

    Thank you for any replies, even if they only confirm my fears.

    Lizbeth

    #2
    I have a rented property, when I purchased a second property as my residential I had to pay the additional 3% stamp duty.

    Rules may have changed since I got my BTL (it was several years ago) but it was very difficult to get a BTL mortgage without having a residential mortgage and no previous LL experience.

    I am new here too

    Comment


      #3
      If you already hold one property under your name or jointly with others, then for buying next property, you should expect to pay the extra 3% sdlt.

      Best to buy your home first because the sdlt on house up to £300,000 is exempt for first time buyers.

      Comment


        #4
        Ye of course he has to pay. The whole point of the SDLT is to penalise people who want to stand on their own two feet instead of sponging off the taxpayer, penalise mobility, and penalise vulnerability.

        Comment


          #5
          From a pure SDLT viewpoint, buying a property to let before buying your own home gives you the maximum amount of tax to pay.

          That's because you lose the First Time buyer subsidy but still pay the second property 3% surcharge.

          Two points:
          If the first purchase was through a company, the situation would not arise and he would be a first time buyer when he bought his residence - assuming the current rules continue to apply.
          Getting any kind of lending on a furnished holiday let business right now would be next to impossible as Conid19 has, essentially, ended that business for the time being (and maybe forever).
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            Thank you for your replies! As I feared, I think, as JPK says, my proposal is the worst way to stage the purchases re SDLT!

            It just seems to me 'unfair' (OK, daft word to use in respect of the taxman!!!!) (as in,viz AD's comment!), that someone who already owns their own residence, can avoid the extra SDLT if they replace it, whereas someone who has never owned their own home can't! (ie, if they already own a BTL)

            I just wish my son would get on with buying a home for himself (and, yes, take advantage of the first time buyer SDLT exemption!) but alas, like so many of his generation, where he works means he simply can't afford to, which is why I am keen to get him on the property ladder (renting is fine ...until you lose your job, become old, sick, etc etc....) even if it means him buying where he can't live himself. I doubt I'm alone in this as a parent.

            He's v. fortunate in that, if he were to buy a 'modest' (very modest!) BTL, then he wouldn't have to worry about getting a mortgage, as Bank of Mum and Dad can provide (well, he'll get it when we peg out anyway!) (hopefully not yet...)

            Comment


              #7
              JPK - thank you for the idea about buying through a company, and that therefore the company would be the legal owner of the BTL, not my son, who would then not have 'sullied' his First Time Buyer Status for when (I hope!) he can eventually buy his own home, plus it would also protect him from the 2nd property extra SDLT.

              It is definitely something worth looking into. However, as with many 'amateur' house-owners, the idea of setting up a company is scary, and would definitely require adequate research about liabilities ands risks etc.

              But maybe, like many 'grown up things' (eg, buying a house!) it's not scary once you get a handle on it.

              Thank you for the recommendation!

              Comment


                #8
                Leading on from all of this, if he doesn't go down the 'company' route, I've also been wondering whether owning a commercial property has any adverse implications for SDLT when he does (eventually!) buy his own home.

                Not actually 'commercial' as in a shop/factory/whatever (!), but - and oh, oh, oh, it's a big big but! - if an FHL can ever qualify as commercial.

                I appreciate this probably isn't the forum for this question, as this is for residential landlords, and I shall have to track it down on FHL-oriented sites.

                Reading up a bit more on this online y/day, it does seem there is 'a' chance that an FHL, which has a 12 month holiday restriction on it, so it can never be lived in permanently, and which meets the FHL criteria for qualifying for business rate relief, by being available and rented out to holidaymakers for the required amount of time during the year, and which is rented via a holiday agency or the likes of Airbnb, etc, MIGHT just be 'non-residential'.

                From what I could see, it's a question of 'if it's not residential, then it's non-residential'....ie, 'non-residential' is anything that isn't residential. It is residential that has the 'initial definition' for HMRC, and 'anything non-residential' is therefore 'commercial'.

                Of course, IF IF IF that holds true (and I will not be assuming it for an instance!), then there is the added benefit that commercial SDLT kicks in at a higher threshold (£150k\).

                BUT, will the taxman see it that way????? He won't want to, I'm sure. One would need a tough advocate to defeat him, and, as we know, conveyancers do not always get it right about SDLT at the best of times (it's not their money, why should they care, and for them better to feed the taxman more than he actually is entitled to....)

                Comment


                  #9
                  Finally - thank you all for your replies so far, and for any more that may be forthcoming!

                  (Great to pick the brains of those who have trodden the path down for others....thankyou)

                  Comment

                  Latest Activity

                  Collapse

                  • Declaration of trust with wife to reduce tax liability?
                    by Madmax86
                    Hi all

                    I'm new to this forum so please be gentle

                    Background

                    I am sole owner of a BTL property (which is mortgaged).

                    I plan to assign 99% of the beneficial interest to my wife via a Declaration of Trust to use up her tax liability. I am a...
                    18-01-2021, 09:07 AM
                  • Reply to Declaration of trust with wife to reduce tax liability?
                    by Madmax86
                    I know it's a bizarre situation. I asked twice and have two emails of confirmations. My first reply was along the lines of "are you sure because this article states...." and they're reply was "yes I can confirm this does not affect your lender and they don't need to be notified"....
                    19-01-2021, 15:54 PM
                  • Reply to Declaration of trust with wife to reduce tax liability?
                    by jpkeates
                    Quite right.
                    Missed that speed reading!

                    If they say that HMRC will accept that arrangement, there's no reason for me to doubt it.
                    Yes, pretty much.
                    Your wife would probably have an annual tax return to complete, but other than that.

                    I saw that in the other...
                    19-01-2021, 15:40 PM
                  • Reply to Declaration of trust with wife to reduce tax liability?
                    by Madmax86
                    No. This link you need to read the bit under the 'sole legal owner' heading. And the other link is about the deed of assignment and states it SHOULDN'T be used if you own the property as joint tenants. There is mention of form 17 but that wouldn't relate to me.



                    Yes I know,...
                    19-01-2021, 15:33 PM
                  • Tax on Sale of Lease Extension
                    by Zajie
                    Hi All. I own the share of freehold to my flat and the flat below mine. The lessee of the flat below mine requested a lease extension which I granted in March 2020 and therefore need to report this on my 2019/20 tax return.

                    I have had a look around and it seems that this should be reported...
                    19-01-2021, 11:31 AM
                  • Reply to Tax on Sale of Lease Extension
                    by Zajie
                    I own the share of freehold for that flat and this was done around 6 years ago for £12,500.

                    Regarding selling the share of freehold I cannot sell the flat as I do not own it. The underlease owns the property and I just own their share of freehold which gives me the right to sell a lease...
                    19-01-2021, 13:59 PM
                  • Reply to Tax on Sale of Lease Extension
                    by Gordon999
                    For £16,750 capital gains, you can claim the personal capital allowance of £12,300 and pay cgt on the balance of £4450 at 18% = £800 ?
                    19-01-2021, 13:16 PM
                  • Reply to Tax on Sale of Lease Extension
                    by Section20z
                    As the premium was so low I don't think you will actually need to declare it because you probably haven't made gains more than your allowance. If you do declare you will need to show the calculation otherwise it will look odd to have a disposal with no acquisition cost.
                    what share of freehold...
                    19-01-2021, 13:12 PM
                  • Reply to Tax on Sale of Lease Extension
                    by Zajie
                    Yes it was. And although they did not go down the statutory route we did agree on zero ground rent. My feeling is it can be done as all gain (it was only £16,750) as I am not sure that I can put any of the share of freehold cost against it as that would come into play when /if I sell the share of...
                    19-01-2021, 12:56 PM
                  • Reply to Tax on Sale of Lease Extension
                    by flyingfreehold
                    Was the lease extension granted to one who could have obtained a lease extension compulsorily if they had wishes and at nil ground rent? If so you can defer the tax indefinitely by re-investing the gain in other land do long as it is bought for investment and not land for your own amenity purposes.
                    19-01-2021, 12:46 PM
                  Working...
                  X