Second home tax advice?

[Hemberley]

I wasn't sure whether to post here or in the Money topic but here goes....

DH and I are selling our current home and using the proceeds to purchase two properties. We will have the less expensive of the two new places as the "second home", but what happens if we complete on the more expensive property AFTER the cheaper one? Would the more expensive one then become the second home, and therefore subject to the extra 3% SDLT? If anyone has any knowledge I would be very grateful - can't find info on timings like this on HMRC website.

There are various things that determine a main home. It’s not what completes first. It will actually be where you live. So if these guns home completed first, don’t move in. When you complete on your main house, move in. Get you snd DH on the electoral role at your main house. Make sure all official mail comes to your main house. Give this address to tax, official bodies eg DVLA and don’t do any of this for the second home address.

If you intend to let it out, ensure your run it as a business. If more Covid comes along, if you let it out for the required number of weeks and you are business rates (council
Tax) registered, you get the grants.

You cannot avoid Capital Gains tax on a second or investment property unless you move into it and sell your main home.

Hope this helps.

guns?? designated second home...

Loads of people sell a bigger house and down size and do exactly what you are doing.

By the way, when you sell a second home, both of you get capital gains tax relief. So both of you owning it is better in the long run if you never intend to live there. You must nominate a main home and do what I said above. But you cannot hedge your bets to avoid tax. Other than by selling your main home in future and then moving into your second home. So that becomes the single main home.

@PresentingPercy thanks for your post!
Unfortunately we cannot complete on the second home and not move in. As I have said, the funds to purchase are coming from the sale of our current home, so where would we move to? Renting/air bnb is not feasible for us for various reasons. NB. I have no intention of trying to avoid second home tax altogether, which is impossible. I just want to make sure it is payable on the less expensive house, for obvious reasons.

@nicknamehelp

If you sell 1 house and move into a house that house would be your main residence and be this till you buy/ move into another property when this will then become your main residence and previous house assuming you didn't sell it the 2nd home.

This message from @nicknamehelp is quite hopeful and seems prescient to our situation.....

Or, ensure all three transactions go through at the same time.

Or get a bridging loan of the small house goes through first.

Why can you not rent somewhere? Making choices to spend money on two houses will always cost more regarding stamp duty. If the rent is less than the stamp duty difference you are better off. Or get a loan as described above.

Renting is out of the question as mentioned before. Yes ideally all three transactions would go through at the same time but there is a chance the more expensive place will take longer, hence my thread.

@PresentingPercy

Why can you not rent somewhere? Making choices to spend money on two houses will always cost more regarding stamp duty. If the rent is less than the stamp duty difference you are better off. Or get a loan as described above.

This doesn't really make sense.

You may more stamp duty on a second home. The stamp duty on the more expensive house is more money. So it pays to make this your main home. If you have to pay the extra on the large amount of stamp duty, it costs more.

@PresentingPercy

You may more stamp duty on a second home. The stamp duty on the more expensive house is more money. So it pays to make this your main home. If you have to pay the extra on the large amount of stamp duty, it costs more.

Yes, of course. We know that, that's what the OP is asking about. How did your post help address that?

Hi OP. Doesn't matter which order you purchase the two homes in. We have purchased ours before we sell our first and will have to pay the 3%, but will then be able to claim it back when our first property sells. So you might have a cash flow issue but in the end you will be able to have paid the extra 3% on the second home.

The main point to note is that the 'second' home doesn't mean you bought it second. It means it is secondary to your main residence.

Also to reiterate, you cannot avoid paying the tax by having the homes in two separate names for you and your husband. We asked our solicitor, as we weren't sure of the rules! . You'll have to fill out forms saying whether you are married or not so theres no way the solicitor would let you get away with it (not that you were going to try, but just for other people!).

You’re married, you can only have one main residence. Main residence is an issue of fact, not manipulation to suit your finances - as of course that’s tax evasion.

I’d argue you could to elect to pay higher SD on the least expensive one should it complete first (as it will not be your main residence and to qualify for lower rate on the second you would need to sell it if you don’t).

Based on the following example from
The SDLT manual.

• Example 4 Ms G currently owns two buy-to-let properties, which she has owned for a number of years. She sold her previous main residence six months ago and moved temporarily into one of her buy-to-let properties, whilst looking for a new main residence. She buys a new main residence, moves into it and rents out her buy-to-let property to tenants again.

Ms G will be treated as replacing her main residence if the property she sold six months ago was her only or main residence and she lived in it as her only or main residence at some time in the past 3 years. The fact that she lived in one of her buy-to-let properties in the interim period does not affect this. *

Found here www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09810

Obviously the circumstances don’t exactly mirror yours, but it’s a similar principle.

If you read the examples on the page I linked it’s all about replacing your main residence where the purchase is to replace your main residence it seems more likely that the normal rates will apply. Owning another property does not prevent you replacing your main residence.

@Veuvestar

You just claim the more expensive one as your main home. You claim it back, but there’s a time limit.

www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties

Alien, are you keeping both houses? If yes, then you should pay extra 3%

You need a sale to claim it back?

We sold our old home after buying our new one.

If you complete on either or both properties before selling your first home you pay the extra 3% stamp duty but you can reclaim that if one becomes your main home within 3 years on the one that becomes the main home.

The main home isn't the order you bought them in, its the one that is your main residence so one you live in most of the time predominately - you can make an election to HMRC and nominate a main home within 2 years of purchase. If you don't do that (which we didn't) the HMRC decides which was your main home - they do this based on things like which house are your cars registered to with DVLA, electoral roll, where are you registered at doctors.

Be aware though they can and do change the rules - when we bought we should have been exempt from cgt but they changed rules to shorten it and so now we have to do cgt return on house sale for old house which completed on Friday. In case you may find yourself in this situation keep all receipts for work on house, buying and selling as you'll need this as evidence on cgt form. Its worth either paying accountant or reading all the rules yourself and checking every year or so no rules have changed.

If you are married (we are) you can't have two main residences.

Solicitors can’t give tax advice. I’m not questioning my advice above because you’ll only own one property.

I think I’d delay completion of the cheaper one - if it falls through they’ll be others. The purchase of the main residence is most important.

@Silkiechickscat

We sold our old home after buying our new one.

If you complete on either or both properties before selling your first home you pay the extra 3% stamp duty but you can reclaim that if one becomes your main home within 3 years on the one that becomes the main home.

The main home isn't the order you bought them in, its the one that is your main residence so one you live in most of the time predominately - you can make an election to HMRC and nominate a main home within 2 years of purchase. If you don't do that (which we didn't) the HMRC decides which was your main home - they do this based on things like which house are your cars registered to with DVLA, electoral roll, where are you registered at doctors.

Be aware though they can and do change the rules - when we bought we should have been exempt from cgt but they changed rules to shorten it and so now we have to do cgt return on house sale for old house which completed on Friday. In case you may find yourself in this situation keep all receipts for work on house, buying and selling as you'll need this as evidence on cgt form. Its worth either paying accountant or reading all the rules yourself and checking every year or so no rules have changed.

Electing a main home is for CGT not SDLT. Unless I’m mistaken?

Yes looks like its for cgt but stamp duty though you can nominate is done on similar method - which home is car registered to, doctors etc.

www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09812#:~:text=In%20cases%20where%20an%20individual,residence%20is%20the%20main%20residence.

can = can't

I would agree where we were discussing the purchase of a property where the OP already owned other property, but in this instance we’re not.

The purchase of a second property is what triggers the higher rate SD. You cannot be liable for higher rate SD where you do not own another property. On that basis I don’t think it’s possible for OP to elect the only property they own as a second property.

I’ve been chewing it over and changed my mind from my initial thoughts.

If you go on the stamp duty calculator, it runs through, on the SDLT5 (the form used to submit stamp duty for a residential property) there is not an option to elect the purchasers property as a BTL where it’s an only property. This differs to CGT.

I think it depends what order the OP is planning on doing this which isn't totally clear to me.

If she sells her current main home at the same time as buying cheaper house she will only own one at each point so no extra stamp duty payable at that point. She then buys more expensive property meaning two residences and higher rate stamp duty will be payable as there's now two homes. In this case my guess would be you pay higher rate SDLT on the more expensive property which you can't reclaim without a sale though I would get advice.

If both new homes are bought before the sale of current main residence higher rate stamp duty would be payable on both new properties as second and third properties then when sell main home you claim (can do via solicitor) higher rate stamp duty back on 3rd one, more expensive one.

www.moneyadviceservice.org.uk/en/articles/everything-you-need-to-know-about-stamp-duty

[quote Silkiechickscat]I think it depends what order the OP is planning on doing this which isn't totally clear to me.

If she sells her current main home at the same time as buying cheaper house she will only own one at each point so no extra stamp duty payable at that point. She then buys more expensive property meaning two residences and higher rate stamp duty will be payable as there's now two homes. In this case my guess would be you pay higher rate SDLT on the more expensive property which you can't reclaim without a sale though I would get advice.

If both new homes are bought before the sale of current main residence higher rate stamp duty would be payable on both new properties as second and third properties then when sell main home you claim (can do via solicitor) higher rate stamp duty back on 3rd one, more expensive one.

www.moneyadviceservice.org.uk/en/articles/everything-you-need-to-know-about-stamp-duty[/quote]
Yes I agree with that.

@waitrosetrollydolly

Put one in your name and one on your partners. Treat each as your main residence and visit each other regularly.

Awful advice. If you are married your interests are treated the same for SDLT calculations.