Properties purchased for less than £40k

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    Properties purchased for less than £40k

    Hi

    As you all know, new higher SDLT rates came into force in April for buyers of 'additional' properties. The 3% surcharge is not payable if the 2nd property purchased is LESS than £40k. However, the rules do not make reference to those who own an existing property bought for less than £40k who intend to buy a second property for more than £40k. Does the new surcharge apply to those people or is the 1st house bought for less than £40k not counted as an 'additional' property?

    There are examples on the HMRC for scenarios like this which state that if you own a property bought for less than £40k, this is not counted as an additional property. However, when I use the HMRC SDLT calculator, it doesn't ask me what my current property is worth just the value of the property that I intend to purchase. If it is above £40k, then it says I must pay full the new surcharge.

    I have called HMRC who are giving me conflicting advice.

    Any advice from other forum members would be hugely appreciated.

    #2
    There's nothing I have read that suggests that the value of the "first" property owned has any bearing on the SDLT payable for a second property.
    While that's a little unfair perhaps, the £40k limit was a specific exclusion, and there's no requirement for "reciprocal" allowances.
    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


      #3
      I have found the following article on HMRC's website. It's paragraph 2.15 and Example 36 which states that properties below £40k whether bought first or 2nd are not included for the 3% surcharge-

      https://www.gov.uk/government/consul...ial-properties

      Comment


        #4
        Hi Marksmith1
        I believe you are referring to Example 36 in the HMRC document, having read this several times I am drawn to the conclusion that if the present property is the primary residence and was purchased for below £40k then the second property being purchased above £40k then the 3% Premium doesn't apply but if the below £40k was not the primary residence then it could be argued that the premium would apply.
        An interesting question and one which does require a response from a solicitor with Conveyancing expertise.

        Comment


          #5
          [QUOTE=Marksmith1;598452]I have found the following article on HMRC's website. It's paragraph 2.15 and Example 36 which states that properties below £40k whether bought first or 2nd are not included for the 3% surcharge-

          https://www.gov.uk/government/consul...ial-properties[/QUOTE

          Under 2.2 it says :

          The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property.

          So if you already have a property registered in your name ( whether 100% or just 1% under joint name ) , you should expect to pay the higher rate of SDLT on next purchase.

          Comment


            #6
            You are indeed correct but if you follow down to example 36 the facts get blurred.

            Comment


              #7
              The problem is that there's still no finance act, so all we have are proposals and worked examples.

              However, the latest (that I can find) HMRC guidance notes (16 March) are quite specific.
              https://www.gov.uk/government/public...ial-properties

              There are four criteria that have to be met to trigger the higher rate of SDLT.
              3.1 The higher rates will apply to the purchase of a major interest in a single dwelling by an individual, if at the end of the day of purchase Conditions A to D are met8:
               Condition A - the chargeable consideration is £40,000 or more;
               Condition B - the dwelling is not subject to lease which has more than 21 years to run on the date of purchase;
               Condition C - the purchaser owns an interest in another dwelling which has a market value of £40,000 or more and is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling; and
               Conditions D - the dwelling being purchased is not replacing the purchaser’s only or main residence.
              3.2 If any of Conditions A to D are not met the higher rates will not apply to the purchase.
              There's more detail elsewhere about condition C, but in the OPs position condition C is not met and therefore the extra SDLT trigger is not pulled.

              I'm not 100% certain this is correct in the absence of a completed finance act, proof that this is THE definitive HMRC document (the text detailing condition B can't be right and there's a massive typo on page 5), but it would indicate to me that this is a valid interpretation.
              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


                #8
                What is your conveyancing solicitor's position on this?

                Comment


                  #9
                  If it's anything other than total confusion, we want to know their name!
                  8-)
                  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


                    #10
                    I spoke to my conveyancing solicitor and the HMRC who appear as clueless as each another on the new SDLT rules for the purchase of additional properties.

                    When I explained to the HMRC I owed a property which I purchased for less than £40k, the call handler said I would still have to pay the higher rate surcharge. When I drew his attention to Example 36 of HMRC's guidance and question 7 on page 25 of the further guidamce from HMRC, he then said he agreed with me that I didn't have to pay the higher rate SDLT. I mean incompetent isn't the word for these people. I seems no one knows the ins and outs of the new rules.

                    As I still can't be 100% sure what my tax liabilities are, I need to make contingency plans in case I am liable for the extra SDLT. Does anyone think I could limit my SDLT exposure by doing any of the following:

                    1. Buy new property through a limited company?
                    2. Transfer my existing property to a limited company and purchase second property in my own name
                    3. Gift whole or part to a family member- as I bought my existing property from a local housing association, I am unable to sell it for another 5 years- clause within the purchase contract

                    I know Osbourne has done his best to close most loopholes and HMRC are keeping "a keen eye" on this according to their website.

                    Thanks

                    Comment


                      #11
                      Having initially read the consultation documents (and therefore being wrong in my first response), having re-researched it I am pretty sure you don't need to pay the 3%.
                      What I would do (personally) is proceed on this basis.

                      If the SDLT was to include the 3% surcharge, would I go ahead anyway?
                      If so, I would pay the non-surcharged version as per the end of the conversation with HMRC (who are, ironically, not in a position to give such advice, as they have no liability if it turns out to be incorrect).
                      Wait...

                      1 - That would change the SDLT picture, but you would need to walk through the other consequences, as that changes the tax position completely. It may also affect the cost of any borrowing.
                      2 - As 1 - however, the Housing Association would say no.
                      3 - You can't gift it either, as that would be a disposal and the Housing Association would object.
                      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

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