Change of Main Residence
Having discussed this with many Revenue staff, in both England & Wales, and receiving contradictory advice I can only assume that even the Revenue do not comprehend their convoluted rules. In any event Duty remains your responsibility, and NOT that of your Conveyancer. It is a self-assessment. Your Conveyancer acts as agent only.
Bear in mind that the Revenue can investigate suspected underpayment following completion.
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As link does not appear to be working consistently the article wording from “This is Money” is reproduced below.
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My wife and I are in the process of buying a new home, but are struggling to sell our current flat. Instead of taking another 10 per cent off the asking price, we have decided we would like to keep it as a buy-to-let investment, as we have sufficient funds to put down a deposit for another property without needing to sell.
However, we are worried that this will mean we will have to pay the extra 3 per cent stamp duty surcharge on the new home. Given the house we are buying is worth £350,000, it will cost us an additional £10,500 more in stamp duty compared to if we were selling up and moving.
Is there any stamp duty exemption when buying a property that will be your main residence? And if not, does keeping our existing home still make financial sense?
(Via email)
Ed Magnus of This is Money: Not having to sell your current home in order to buy the next one is a nice problem to have. Nonetheless, you need to make a sensible decision, particularly given the financial implications of having a second property.
The rates of stamp duty are set at a percentage of the purchase price, which varies depending on the value of the property you are buying.
If you only own one property, you won’t pay any stamp duty up to the value of £125,000.
For the portion of the purchase price between £125,000 and £250,000 you will be charged 2 per cent, whilst between £250,000 and £925,000 it rises to 5 per cent.
However, as a second homeowner you will be required to pay the additional 3 per cent stamp duty surcharge on top of this.
Given the house you are buying is £350,000, it will cost you £18,000 in stamp duty if you keep the home, compared to just £7,500 if you were simply selling up and moving.
We spoke to Nigel May, tax partner at MHA MacIntyre Hudson, to confirm whether there are any possible tax exemptions available.
We also spoke to Karen Noye, mortgage expert at wealth management firm Quilter, about the implications of keeping the current home as a rental property.
Is the 3 per cent surcharge avoidable in this situation?
Nigel May replies: The easiest way to look at the surcharge is that it applies to all residential property purchases, unless you fall within the main residence exemption.
What the reader appears to be trying to do is to retain their existing main residence as a buy-to-let and to move into a new residence.
The conditions for the main residence exemption from the surcharge are very stringent.
If you have an interest in another property when you buy the new main residence, the 3 per cent surcharge always applies - unless you sell the first property within three years of purchasing the new residence.
In this situation, as a matter of practice, the 3 per cent surcharge is applied - but then you can claim repayment upon the sale of the first property. So, for the surcharge not to apply, the existing home needs to be sold.
If the owners decided not to keep their existing home in the long term, but the sale continued to be delayed, the surcharge would apply at the point of buying their new home. However, it would at least be recoverable.
Should they keep their current property?
Karen Noye replies: Keeping their existing home and letting it out will give them an investment property, and potential for income via the rent. If house prices continue to rise they will also benefit from increased equity. They will also not have the pressure of buying and selling at the same time, which can be stressful.
Being chain-free could also put them in a better position when making offers, as they are not reliant on selling. Similarly, they will avoid having to cough up for estate agent selling fees.
On the other hand, they will be responsible for two properties, repair costs, mortgages and if they don’t have a tenant, they will still need to pay the mortgage payments and service the property. Similarly, income tax is payable on the rental income via a tax return.
Finally, if the property market was to drop, then both properties would be hit by falling house prices.
If they have a mortgage on their current home do they need to tell their lender they’ll be letting it?
Karen Noye replies: Unless they are in a position to re-mortgage the existing property, they will need to get consent to let from their existing mortgage lender. Some lenders do increase the interest rate or charge a fee when applying for consent to let.
Eventually, they will need to switch to a buy-to-let mortgage, which can mean paying a higher interest rate.
Ed Magnus of This is Money replies:
If you have not sold your main residence on the day you complete your new purchase, you’ll have to pay the higher rate. I'm afraid there is no avoiding that.
However, you can apply for a refund if you sell your previous home within three years of becoming a second homeowner.
If it takes longer than 36 months to sell your previous home you may still be able to get the £10,500 refunded, as long as you are able to explain to HMRC why the sale took longer.
However, typically HMRC would expect exceptional circumstances such as the impact of coronavirus or an action taken by a public authority preventing the sale.
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