Things are changing in the UK property market and when it comes to owning more than one property, you need to see how these changes might affect you.
If you want to find a second home in the Isle of Wight for example, you can learn more from Watson Bull and Porter about what is available. You should also get up to speed on what the changes to stamp duty rules on second homes might mean to you.
Still awaiting the final details
The chancellor announced changes to the UK stamp duty rules in the last Autumn Statement, and the headline news is that buy-to-let landlords and anyone planning to buy a second home, will face a 3% surcharge on each current stamp duty band.
We are still actually awaiting final details of how the extra stamp system will be applied and the consultation period for the proposed changes has only just expired. This means that the March 2016 budget will contain the full and final details of how these changes will be implemented from the start of the new tax year in April 2016.
What we do know for sure is that it is proposed to levy an additional surcharge of 3% on any additional properties you buy, that are not your main residential property.
Various scenarios
As with most tax laws, very little is completely black and white, and there are certain qualifying conditions and scenarios where you may not have to pay the surcharge.
For instance, it is understood that the additional 3% rate will not apply if at the close of the specific day in which you make a property sale, you own only one residential property, regardless of the intended use of that property.
If when the transaction is completed, you will be the registered owner of two or more residential properties, you may well have to pay the surcharge, depending on whether you are replacing your main residence or not.
What is also known at this point, is that there will be a grace period of 18 months in which you will be able to replace your main residence following an earlier sale. This means that you could potentially claim a refund of this stamp duty surcharge if you purchase a new residential property within that 18-month window.
Transferring property
There are many potential investors who have a variety of different questions relating to the stamp duty surcharge and many simply want to know if there is a legal way of arranging your property affairs in order to avoid paying this additional sum.
When you consider that for example, buying a second home for a purchase price of £275,000 will currently attract a stamp duty bill of £3,750, but this will rise to £12,000 from April 2016, you can see what a substantial difference it could make to your decision to buy.
One scenario that investors might consider is whether they can transfer their existing residential property into sole ownership rather than joint, so that the other person can then buy the second home without falling foul of the amended stamp duty rules.
The bad news is that this particular strategy is unlikely to be successful. HMRC are considered likely to apply the same system that applies to exemptions on capital gains tax for your main home and therefore only allow one private residence for each married couple.
You would obviously have to seek out some professional advice if you are joint property owners but are not married, but if you are a wedded couple, you will not seemingly be able to circumnavigate the rules by transferring ownership on your main residence.
Potential deterrent
What you need to remember is that the 3% surcharge is going to be applied in each current stamp duty band, so the more expensive the property you are buying, the more significant the additional surcharge becomes as a potential deterrent to the deal.
If you were in the market for a £2 million second property in London for example, you will be adding a not insignificant sum of £60,000 to your stamp duty bill. Even if you are not in the market for a second home in that price bracket, with house prices in popular areas falling into higher stamp duty categories, it would seem wise to check your numbers and see what a difference it could make to your finances.
There will be plenty of UK property investors who will be watching and listening intently to the budget statement which announces the final plans for the UK stamp duty surcharge.
Harry Goddard has many years of experience working in the real estate industry, and most recently has entered the buy-to-let business in the hopes of securing himself a better retirement. His property related articles appear on several industry related websites.
