Sunday, November 10, 2024

How to swerve Labour’s stamp duty raid on second homes

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3. Buy a commercial property and convert

Again, the cheaper non-residential rates apply here, and the extra surcharge doesn’t. You could buy the commercial property with cheaper stamp duty rates and obtain planning permission to convert it into residential.

There can be VAT benefits here too. When converting commercial into residential property, reduced VAT rates of 5pc for labour and materials apply, rather than 20pc.

4. Consider the price of furniture

If the agreed sale price of a property includes its “chattels”, you could end up paying more stamp duty than you need to.

Chattels are defined as items that can be removed from a home without causing significant damage, such as curtains, carpets and some white goods.

You can negotiate with the seller to take this off the sale price and lower your stamp duty bill.

Or, these could be bought from the seller outside of the property transaction. Consult a specialist solicitor if you are looking to strike a deal like this as it is crucial nothing is overvalued.

5. Sell your main residence within three years

Buying a second home to use as your main residence before you sell your current home will result in you paying the 5pc surcharge. However, if you sell your old property within three years, you will be able to claim a refund on the stamp duty you paid.

To qualify, you must send the request to HMRC within 12 months of the sale of your main residence, or within 12 months of the stamp duty return for the new residence being filed, whichever is later.

This can come in handy for retirees eyeing up a holiday home which will soon become their main residence. It’s not helpful for landlords building a portfolio.

6. Negotiate on the price

A reliable way of reducing your stamp duty bill is to haggle on the purchase price of the home. The 5pc surcharge does not apply to property transactions under £40,000.

While you’ll struggle to pick up a home for this price, it’s worth considering if you’re looking for a thorough restoration project.

If you’re at the higher end of the market, negotiate on the price to bring yourself into a lower tax bracket.

A second home purchaser pays 10pc on homes up to £925,000, but 15pc anything over £925,001, and 17pc on anything over £1.5m.

This means a buyer of a £955,000 second home can shave £3,750 off the stamp duty fee by getting the price down to £925,000.

7. Buy a mobile home or boat

Certain types of dwellings are exempt from the stamp duty surcharge, such as mobile homes, caravans and houseboats.

These are also exempt from the standard stamp duty fee.

Stamp duty on second homes FAQs

Can I avoid it by buying six homes at once?

Before June 2024, you could buy six or more homes and avoid having to pay the surcharge.

But this has changed. A landlord buying multiple properties at once has to pay the additional 5pc.

Does the stamp duty surcharge impact limited companies?

Yes, it does.

Creating a limited company and buying rental properties this way does not sidestep the extra stamp duty charge.

Does the surcharge impact first-time buyers?

No, it doesn’t.

If you’re in the unlikely scenario of being a first-time buyer purchasing a buy-to-let, you can evade paying the stamp duty surcharge as the property will not be a second home.

However, if you’re purchasing a property you’re not planning to live in, you’ll forfeit the first-time buyer stamp duty relief, and instead be charged the same rates as other home movers.

What if I transfer ownership of a second home?

If you’re transferring full or part ownership of a residential property to your spouse, the additional surcharge does not apply as long as no one else is involved in the transfer.

If you want to increase the amount of a second property that you already own, you do not have to pay the higher rates if you already own 25pc or more.

What if I’m buying a house for my child?

As you already own a home yourself, this purchase will come with the additional stamp duty charge.

There are ways around this, however. If you act as a guarantor, your name will not be on the deeds – your child (a first-time buyer) will be the legal owner.

Just be aware, becoming a guarantor means you will be responsible for covering the mortgage repayments if your child cannot do so.

You could also set up a family offset mortgage. To find out more about these specialist mortgage deals, read our guide on how to help your children on the property ladder.

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