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:
- Newly established SPVs
- Seller-buyer related transactions
- Let to buy transactions
- Consumer buy to lets
- First time landlords
- Landlords with income less than £25k pa
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.
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