Stamp duty trap: young buy­ers face costly shock

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This teacher faces an ex­tra £15,000 stamp duty bill – sim­ply be­cause she tried to plan and be pru­dent. Sam Mead­ows re­ports

Thou­sands of young peo­ple who bought buy-to-lets as a way of get­ting on to the prop­erty lad­der are dis­cov­er­ing they must pay tens of thou­sands of pounds in ad­di­tional stamp duty when they come to buy a home for them­selves.

Re­cent years have seen a grow­ing trend for young pro­fes­sion­als – es­pe­cially those liv­ing in costly ar­eas such as the South East – to buy first prop­er­ties in cheaper ar­eas. They let these out while con­tin­u­ing to rent closer to their work.

But changes to stamp duty in­tro­duced by for­mer chan­cel­lor Ge­orge Os­borne, ap­ply­ing from 2016, mean that when they come to buy their main home they are li­able to pay an ad­di­tional 3pc stamp duty sur­charge. Many only dis­cover this once their pur­chase is well un­der way – and the higher bill comes as a shock.

There is a fur­ther irony, they say, in that older, bet­ter-off peo­ple who al­ready owned two homes and who are “re­plac­ing” their main res­i­dence do not have to pay the ex­tra duty. The pol­icy favours those who al­ready own mul­ti­ple houses.

So­phie Fer­nan­dez, a 32-year-old teacher who lives in north Lon­don, bought her first prop­erty in Lough­bor­ough for £113,000 in Au­gust 2015 – months be­fore the stamp duty changes were an­nounced.

She is now ready to pur­chase her own home, but the prospect of pay­ing an ad­di­tional 3pc stamp duty means this will be dif­fi­cult to af­ford.

A two-bed flat in Fins­bury Park, where she is look­ing with a friend, will cost around £500,000. If this was her first pur­chase she would pay £25,000 in duty – but the “ad­di­tional prop­erty” stamp duty rules mean her bill would be £40,000.

“I’m sure there are a lot of peo­ple in the same sit­u­a­tion,” she said. “I am a teacher and lived abroad while sav­ing up for a de­posit, but when I got back ev­ery­thing was go­ing over the ask­ing price and I couldn’t af­ford to buy in Lon­don.” That was when she de­cided to buy else­where as a “first foot” on the lad­der.

Miss Fer­nan­dez bought the prop­erty and spent £20,000 and a year ren­o­vat­ing it. She sus­pects she would lose money if she sold it now – so she wants to hold on to it. She said: “It is just so un­fair. I bought the prop­erty be­fore I knew this was go­ing to hap­pen. If I had known, it wouldn’t have been worth it, and I wouldn’t have gone ahead.”

Nimesh Shah, a part­ner at Blick Rothen­berg, the tax ad­vis­ers, said Miss Fer­nan­dez will strug­gle to find any way of le­git­i­mately avoid­ing the ex­tra charge. If she was “re­plac­ing” her main res­i­dence – sell­ing her for­mer res­i­dence within three years of the pur­chase – she would be able to ap­ply for a re­fund of the ad­di­tional 3pc charge. How­ever, as she has no main res­i­dence to re­place, this ex­emp­tion does not ap­ply.

While a vet­eran land­lord with 50 buy-to-let prop­er­ties and a main res­i­dence could thus avoid the ad­di­tional charge, Miss Fer­nan­dez can­not.

Mr Shah said: “The pol­icy in­ten­tion was to stop peo­ple own­ing more than one prop­erty and that’s why Miss Fer­nan­dez is fall­ing into it, but she went into buy­ing the Lough­bor­ough prop­erty with no knowl­edge this would come in.

“Now she’s in a po­si­tion to buy her home and she is be­ing clob­bered. The law is catch­ing peo­ple out in sit­u­a­tions such as this. She is un­for­tu­nately a vic­tim.”

Mr Shah said there are two ways Miss Fer­nan­dez could avoid the sur­charge. Firstly she could take the hit and sell the house in Lough­bor­ough be­fore the pur­chase, mean­ing she would pay reg­u­lar costs of stamp duty.

By do­ing this she would risk crys­tallis­ing a loss if in­deed the sale price is lower than the sums she has in­vested.

Her other op­tion is more rad­i­cal: she would have to leave Lon­don and move into the Lough­bor­ough prop­erty. If Miss Fer­nan­dez lived in the Lough­bor­ough prop­erty in the three years lead­ing up to the new pur­chase, she could ar­gue that she is “re­plac­ing” her main res­i­dence.

That way she would still pay the higher stamp duty on the new pur­chase. But, pro­vided she sold the Lough­bor­ough house within three years, she would qual­ify for a re­fund for hav­ing lived there.

A house can be clas­si­fied as a main res­i­dence if the per­son is reg­is­tered to vote or reg­is­tered for a doc­tors’ surgery at the ad­dress, along­side sev­eral other cri­te­ria.

From its in­cep­tion the changes to stamp duty for “ad­di­tional” prop­er­ties have been be­set with

So­phie Fer­nan­dez, 32, faces a stamp duty sur­charge for buy­ing a sec­ond prop­erty

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