Fam­i­lies trapped by stamp duty

Stamp duty is rais­ing record sums, but it is also cru­elly ham­per­ing the am­bi­tions of many fam­i­lies, says Sam Mead­ows

The Sunday Telegraph - Money & Business - - Front page -

Au­gust was the sixth con­sec­u­tive month in which the Ex­che­quer dragged in more than £1bn in stamp duty re­ceipts, ac­cord­ing to new data from HRMC – ce­ment­ing the po­si­tion of this tax as one of the Gov­ern­ment’s fastest­grow­ing earn­ers. An­nual stamp duty rev­enues have tre­bled since the on­set of the fi­nan­cial cri­sis. They are higher to­day than in the boom years of 2006 and 2007 – even though the num­ber of prop­erty trans­ac­tions then was far higher than to­day.

A lethal com­bi­na­tion of ris­ing prop­erty prices and dra­matic in­creases in the lev­els of the duty it­self is be­hind the soar­ing tax take.

The Tele­graph, in cam­paign­ing for a whole­sale re­form of the duty as a means of re­ju­ve­nat­ing the hous­ing mar­ket, has con­sis­tently pointed to ar­gu­ments that more money might be raised if the level of the tax were cut and more trans­ac­tions en­cour­aged.

But the hu­man cost is also high. Home­own­ers are de­terred from mov­ing for work or other rea­sons. Older own­ers are pre­vented from down­siz­ing – and younger peo­ple from buy­ing in the first in­stance.

One of the most con­tro­ver­sial and im­prac­ti­cal changes to stamp duty was the in­tro­duc­tion in April 2016 of a 3 per­cent­age point “sur­charge” sup­posed to ap­ply to those who bought prop­erty in ad­di­tion to their home. The aim was to curb the buy-to-let sec­tor.

This was just the lat­est in a string of changes to stamp duty, giv­ing rise to a sys­tem that some now say poses a threat to the wider econ­omy – and not just the hous­ing mar­ket.

Rob Pullen, direc­tor at Blick Rothen­berg, the ac­coun­tants, said: “Were the Gov­ern­ment not busy with Brexit and the snap elec­tion I think they might have ad­dressed some of these huge prob­lems.”

Par­ents who seek to help chil­dren

Ann Brown, 53, is among the mil­lions of par­ents who would like to help their chil­dren own prop­erty. When her 24-year-old daugh­ter Hannah de­cided to buy a home, Ms Brown added her name to a mort­gage on Hannah’s two-bed­room flat in Corn­wall, then worth £160,000.

This al­lowed Hannah to bor­row more, but the pair were shocked to find they were hit by the sur­charge be­cause of Ms Brown’s own­er­ship of her own home. This meant the stamp duty bill shot up from £700 to £5,500.

Ms Brown said: “I un­der­stand why the Gov­ern­ment has done this but if it’s not a sec­ond home or a buy-to-let and you can prove it isn’t, I think you shouldn’t have to pay.”

The night­mares of shared own­er­ship

Com­pli­cated cir­cum­stances meant Tin­uola Ade­joke, 51, who has a se­ri­ous ill­ness, wished to buy her £500,000 house in Wel­wyn, Hert­ford­shire, with her son.

How­ever, the son al­ready owns part of a shared-own­er­ship flat, mak­ing them li­able for the sur­charge. Their bill was £30,000 rather than the £15,000 that would nor­mally ap­ply. In an­other cruel twist, when her son comes to pur­chase the rest of his own shared-own­er­ship flat he will pay the sur­charge again.

“I think there should be some ex­emp­tion for par­ents who want their chil­dren on the deeds,” said Ms Ade­joke. “He isn’t go­ing to live there, it’s my house. We aren’t preda­tory land­lords.”

On the is­sue of the son’s shared own­er­ship prop­erty, Mr Pullen said that when pur­chas­ing, buy­ers have the op­tion to pay stamp duty for the value of just their share, or for the full value of the prop­erty.

If the son were to pay duty on the full value of the prop­erty at the out­set, he would have no fur­ther duty to pay if and when he bought the re­main­der of the prop­erty at a fu­ture date, re­gard­less of its then price, Mr Pullen ex­plained. To pay it up­front, how­ever, would mean pay­ing tax on some­thing he did not own – which many peo­ple would be re­luc­tant to do.

Di­vorce

Prop­er­ties owned by mar­ried cou­ples are treated as be­ing owned by both par­ties. That’s why Lau­ren Jones, 34, and her part­ner, Steve, will be hit when

they buy a home of their own.

Steve is sep­a­rated from his wife but not di­vorced. He and his es­tranged wife own a home to­gether in which she and their child con­tinue to live.

This ar­range­ment is far from un­com­mon, and in cer­tain cases such a set-up is of­ten a re­quire­ment of a di­vorce set­tle­ment. But it means that the part­ner who moves on and needs to buy a new prop­erty, ei­ther alone or with an­other per­son, finds that he or she has to pay the higher rate of duty.

Ms Jones said: “We find our­selves in a dif­fi­cult po­si­tion. We want to buy some­where but the higher rate of stamp duty makes it just ridicu­lously ex­pen­sive.”

Lawyers say the op­tions in such cases are very lim­ited, al­though the “main res­i­dence re­place­ment rule” could of­fer some help.

This con­ces­sion means that some­one in Steve’s po­si­tion could buy the new prop­erty and pay the higher rate of duty but, if his for­mer home is sold within three years, he would then be able to claim a re­fund of the sur­charge, so he would even­tu­ally pay just the stan­dard rate.

This would also ap­ply if he dis­posed of his share of the for­mer mar­i­tal prop­erty.

Mr Pullen added: “They could get around it by just pur­chas­ing the new prop­erty in Lau­ren’s sole name, but that comes back to af­ford­abil­ity as to whether that is pos­si­ble.”

Their sit­u­a­tion high­lights a new, stamp duty-driven as­pect of mar­riage tax plan­ning where part­ners can be in­cen­tivised to di­vorce or de­fer mar­riage around their prop­erty pur­chases.

Un­mar­ried cou­ples can buy two prop­er­ties – one in each of their in­di­vid­ual names – whereas mar­ried cou­ples can­not.

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