26 November 2018 is a key date when it comes to sidestepping the Government's 3% stamp duty. Here are 5 scenarios where ignoring it could cost you £1000s...
Rules around the Government’s 3% stamp duty land tax (SDLT) loading on the purchase of additional properties are a minefield at the best of times.
A good place to start is with Zoopla’s 3% stamp duty Q&A where you can also post a question for SDLT expert, John Shallcross.
In some cases, however – all of which are based around so-called replacing a main residence rules – things become more complicated still.
And the date of 26 November 2018, in exactly 12 months’ time, becomes relevant.
If your circumstances reflect any of the following 5 scenarios, get planning NOW and save yourself a potential fortune.
1. You’ve sold a property before 26 November 2015, that you once lived in
A and B sold their home in January 2015 and went to work abroad where they lived in a rental property. They are now returning to England and buying a property for £250,000. They also own a holiday home that’s worth around £100,000.
If they complete the purchase by 26 November 2018 they will escape the surcharge on the £250,000 home and the stamp duty land tax (SDLT) is £2,500
If they complete after 26 November 2018, the 3% loading will apply and the SDLT bill is £10,000
Why? They once lived in the sold UK home as their only residence, holiday homes are still considered as additional property for 3% stamp duty purposes – and the shares A and B have in the holiday home are worth more than £40,000 each.
If they buy the £250,000 property after 26 November 2018 it will be more than three years after they sold their home. This means they would NOT be able use the sale as that all-important ‘golden ticket’ to exempt them from the surcharge on the basis they had replaced their only or main residence.
2. You've sold a property you last lived in before 26 November 2015
C and D bought Property 1 together in 2002 and lived in it until 2006 when they bought Property 2. But they didn’t sell Property 1 – they rented it out to tenants instead.
Now, C and D are buying another home – Property 3 – to live in, at a cost of £500,000. But to fund the purchase, they will first need to sell Property 1. This time, they will keep Property 2 which is worth £200,000.
If they complete the purchase by 26 November 2018 they will escape the surcharge on Property 3 and the SDLT is £15,000
If they complete after 26 November 2018 the 3% loading will apply to Property 3 and the SDLT will cost £30,000
Why? C and D once lived in Property 1 as their only residence (the fact they have also lived in Property 2 since is irrelevant).
But because they last lived in Property 1 more than three years ago, to make use of replacing main residence rules, they need to complete the purchase of the new property by 26 November 2018.
3. You transferred your share in a property before 26 November 2015
E and F were married and owned two properties – the home they lived in and one they rented out, but which is in negative equity.
When the couple divorced in June 2014, E transferred his half share in the marital home to F. The pair jointly retain the property in negative equity which is worth around £100,000.
E has lived in rented accommodation since June 2014 but is now able to buy his own property to live in for £130,000.
If E completes the purchase of the £130,000 property by 26 November 2018 he will escape the surcharge and the SDLT is £100
If he completes after 26 November 2018 the surcharge will apply and the SDLT is £4,000
Why? The property in negative equity, which E still part-owns, will count against him in the new purchase. This is because HMRC considers the MARKET VALUE of his share (currently £50,000), NOT his share minus the debt on the property.
His marital home was E’s only residence but the disposal of his share was more than three years ago.
This means that he’ll need to complete on the new home by 26 November 2018 to fall within the replacement of a main residence exception.
4. You transferred your share in a property you last lived in before 26 November 2015
Brother and sister, G and H bought Property 1 together in 2003 and both lived there. In 2006, G moved out and bought Property 2 to live in but retained his share in Property 1, while H continued to live there. This property is now worth £100,000.
G is now buying Property 3 for £150,000 but to fund the purchase, will sell his half-share in Property 1 to H. G will keep Property 2 and rent it out.
If G completes the purchase of the £150,000 property by 26 November 2018 he escapes the surcharge and the SDLT is £500
If he completes after 26 November 2018 the surcharge will apply and the SDLT is £5,000.
Why? Although G has lived in Property 2 since living in Property 1, he can still use the fact he disposed of Property 1 to get within the ‘replacement of main residence’ exception for the purchase of Property 3.
However, because he last lived in Property 1 more than three years ago, he needs to complete this purchase by 26 November 2018.
Need more detail around 26 November 2018 changes? Head to John's article on the Blake Morgan website
5. Before 26 November 2015 your spouse sold a property you used to live in
J and K are a long-married couple. They lived together in Property 1 (owned solely by J) and sold it in June 2014. The couple then moved into Property 2, which K had inherited many years before.
J and K are now buying a property to live in for £1m. But K is retaining Property 2 which she plans to rent out.
If J and K complete the purchase by 26 November 2018 they escape the surcharge and the SDLT is £43,750
If they complete after 26 November 2018 the 3% loading will apply and the SDLT is £73,750
Why? HMRC looks at joint buyers separately for the purpose of the stamp duty surcharge – even if they are married.
And while J has no properties counting against him, K has Property 2 counting against her.
However, K can potentially rely on J’s sale of Property 1 as she used to live there as her main residence – and was J’s spouse at the time of the sale.
But, again, because the sale was over three years ago, for the replacement exception to apply the purchase needs to complete by 26 November 2018.
What do each of these five scenarios have in common?
There was some kind of sale or transfer which took place before the purchase of a property which the buyer intends to live in
The buyer had transferred or last lived in the previous property before 26 November 2015
The buyer has another property which counts against them
- Regular SDLT applies to homes costing more than £125,000 and kicks in at a starting rate of 2%.
- The 3% SDLT loading applies to additional properties costing £40,000 or more.
You might also be interested in…
Buying a home with a granny annexe? Find out if the 3% stamp duty surcharge affects you
- SDLT surcharge: one year to go before the expiry of the transitional period