Chancellor Rachel Reeves introduced some unwelcome new measures in her first budget.
They included an immediate increase to the stamp duty land tax surcharge for second homes and signalled the end of generous stamp duty concessions for first time homebuyers introduced by the previous government. Around 20% more first-time buyers will become liable for stamp duty.
It means that if you buy a second property, the stamp duty land tax surcharge for second properties known as the โHigher Rate for Additional Dwellingsโ, the extra tax you pay the government for the privilege has gone from 3% to 5%. This is on top of standard costs. A second home purchaser therefore pays 10% on homes up to ยฃ925,000, but 15% on anything over ยฃ925,001.
Regardless of what your intentions are for a new property; holiday home, retirement retreat, investment, as long as it is in addition to the one you currently live in, it will be classed as a second home โ and the treasuryโs new rules will close around you.
The Treasury said increasing the higher rate of stamp duty for additional dwellings will raise a further ยฃ310m by 2030. It will certainly be another nail in the coffin of the Buy-to-Let market.
But are there ways to avoid these swinging increases? At Continuum we are looking at solutions.
1. Be a first-time buyer - quickly
Currently, first-time buyers do not have to pay any stamp duty on the first ยฃ425,000 of a houseโs value, and home movers do not have to pay any stamp duty on the first ยฃ250,000. From April next year, first-time buyers will have to start paying stamp duty on purchases over ยฃ300,000, and home movers on purchases over ยฃ125,000. If you are a first-time buyer and can afford it, you could save by getting on the property ladder sooner rather than later.
2. Buy a mixed-use property
Properties with flats above shops, those that combine office and residential space or agricultural properties with farmland avoid the 5% surcharge.
These mixed-use properties are only taxed at non-residential rates. They are tax-free up to ยฃ150,000, 2% from ยฃ150,001 to ยฃ250,000, and 5% above ยฃ250,000.
3. Buy an uninhabitable property
Properties unfit for habitation benefit from lower rates.
What is โuninhabitableโ in the eyes of HMRC is not entirely clear, but it will mean more than a tired kitchen and swirly carpets. There isnโt a concrete list of issues, but structural problems, asbestos, severe mould, roof leaks, dry rot and fire damage could count. The taxman will assess the situation on a case-by-case basis. The cost of repair might make the extra duty look a bargain.
4. Buy a commercial propertyย
The extra surcharge doesnโt apply if you buy a property classed as commercial. Buy a redundant shop or pub, or a house that has been used as an office, and you enjoy cheaper stamp duty rates - although you might have the challenge of getting planning permission to convert it into residential.
There can be VAT benefits here too. Converting commercial into residential property, reduced VAT rates of 5% for labour and materials apply, rather than 20%
5. Sell your main residence within three years
Buying a second home to use as your main residence before you sell your current home means paying the 5% surcharge. However, if you sell your old property within three years, you will be able to claim it back. You must send the request to HMRC within 12 months of the sale of your main residence.
6. Negotiate on the price
The less you pay for your property, the lower your stamp duty bill. Negotiate on the price to bring yourself into a lower tax bracket and remember - the 5% surcharge does not apply to property purchases under ยฃ40,000 (if you can find one). If the agreed sale price of a property includes its โchattelsโ, you could end up paying more stamp duty than you need to. If you need the fittings, arrange to buy them separately.
7. Get some expert help
There are some other exemptions, such as such as mobile homes, caravans and houseboats, but in most cases, you will find yourself obliged to pay the government more to own a second or even first home.
For help with questions of tax on property, and ways to cut the cost by getting the most appropriate mortgage deal, call us at Continuum.
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Stamp Duty Calculator 2024: How much & when to pay it - MSE
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage or tax saving strategy and you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice or some aspects of Buy to Let mortgages.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
