How to make savings on Stamp Duty

If you are looking to buy a new home and keep hold of your existing one by turning it into rental accommodation, there is a way to save on stamp duty… As long as the new home is more expensive than your existing one, and you’re not a landlord already, as Andy McOwat explains.

Many of my clients look to get into buy to let when they move up the home-buyer property ladder by releasing capital from their existing residence to put towards a deposit on their new home.

However, since April 2016 this ‘let to buy’ strategy has incurred a 3% stamp duty surcharge as the following example demonstrates:

 

Example 1: Total stamp duty payable: £14,000

Sam’s existing home is worth £150,000

He refinances this property onto a buy to let mortgage

Sam buys a new home worth £300,000

Because he now owns a second dwelling he will be liable for stamp duty of £14,000 (including 3% surcharge) on the purchase

But there is another route which will mean that Sam pays less stamp duty…

 

Example 2: Total stamp duty payable: £10,000

Sam sets up an SPV limited company

He gets his SPV to purchase his existing home for £150,000

His SPV will be liable to pay stamp duty including the surcharge on the purchase totalling £5,000

Sam no longer owns any property personally

Next, he purchases his new home for £300,000

Because he doesn’t own any other property personally the stamp duty due on the purchase is £5,000

Of course, there are other costs involved along the line but it still represents a saving on stamp duty of £4,000.

 

In addition, because SPVs are limited companies they are not subject to the restrictions to relief on mortgage interest and other finance costs that will start to come into effect in April for individual BTL investors. (Instead, they pay corporation tax which is about to become much less onerous but that’s another story...)

Lenders inform us that some brokers are now going back to customers who have paid the 3% stamp duty surcharge in these specific let to buy scenarios to get the customer to check whether they might be able to make stamp duty savings retrospectively – purchasers have up to three years to sell the original property.

As with anything that involves tax and investing, remember, this is just an example and you should seek professional advice to establish the tax situation for your specific circumstances. Having said that, the potential savings involved seem to warrant further investigation.

If you do find yourself in this position and need help with finance, please get in touch. We have access to lenders that will accept:


And we are experienced in presenting complex applications in the specific format required by each lender. I can be contacted by email or on my direct line 01625 416396.

 

You may also be interested in:

24.01.17
Common areas of concern when borrowing via a limited company for buy to let
Many landlords are now becoming more comfortable with buy to let borrowing via a limited company including the few additional hurdles this brings. However there is still a perception that the process is complicated and harder to get agreed but this is not always the case, as Gary McKenna, Consultant Mortgage Broker explains.
Read 

04.10.16 
How the new buy to let underwriting standards will affect lenders and borrowers

Steve gives his views on what the implications of tougher interest cover ratios and increased background checks will mean for landlords and buy to let lenders.
Read

13.01.17
FAQs on Ltd Co borrowing for buy to let
Frequently asked questions on limited company borrowing for buy to let mortgages.
Read

Residential Stamp Duty Calculator  

 

Author