Home front: how to avoid the ad­di­tional stamp duty

The sur­charge on ad­di­tional homes drives some cou­ples to di­vorce in an at­tempt to beat it. Sam Barker has five more tips

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

Peo­ple who bought an ad­di­tional prop­erty paid nearly half of all stamp duty last year, re­cent fig­ures show, but for savvy buy­ers there are ways to re­duce this bill. Sec­ond home buy­ers paid £4bn of the to­tal £9.2bn stamp duty re­ceived in the 2017-18 fi­nan­cial year, ac­cord­ing to fig­ures from HMRC. The bill is so high be­cause buy­ers of ad­di­tional homes have had to pay a 3 per­cent­age point sur­charge since April 2016.

But there are ways to bring this cost down – although, as with any type of tax avoid­ance, there is al­ways a risk that HMRC will try to close these loop­holes in the fu­ture.

1 Buy wood­land

One way to cir­cum­vent the tax sur­charge is to buy a house with a plot of wood­land.

If forestry land is part of the prop­erty trans­ac­tion, a buyer can ar­gue that the pur­chase is “mixed use” rather than res­i­den­tial, mean­ing the sur­charge will not ap­ply.

The woods do not need to be at­tached to the house. The buyer is re­quired to give some ev­i­dence that the land is non-res­i­den­tial and is be­ing used com­mer­cially.

2 Semi-com­mer­cial prop­erty

Many of those who pay the sur­charge will be land­lords. One way for these buy­ers to side­step the ex­tra tax is to buy a semi­com­mer­cial prop­erty such as a shop with a flat above it.

As the stamp duty sur­charge ap­plies only to res­i­den­tial dwellings, land­lords in this po­si­tion will pay com­mer­cial stamp duty, which is cheaper.

Com­mer­cial stamp duty is 0pc on prop­er­ties worth up to £150,000, 2pc on the value be­tween this and £250,000 and 5pc above that level. Res­i­den­tial stamp duty starts on homes worth £125,000. A rate of 2pc is payable up to £250,000, then 5pc be­tween this and £925,000, 10pc on the band up to £1.5m and 12pc on any value above £1.5m – with the sur­charge on top for ad­di­tional prop­er­ties.

Steve Ole­jnik of Mort­gages For Busi­ness, a bro­ker, said: “We have some land­lords look­ing at semi­com­mer­cial prop­erty. They’ll have the res­i­den­tial el­e­ment – you’ll get a [com­mer­cial] ten­ant in down­stairs on a three to five-year lease and have an in­vest­ment prop­erty still gen­er­at­ing res­i­den­tial in­come [up­stairs].”

3 Build it your­self

You can beat the sur­charge by buy­ing a plot of land and build­ing your own home. Any houses built in this way will in­cur stamp duty on the pur­chase price of the land rather than the fin­ished cost of the house, and the tax will be charged at the lower com­mer­cial rates.

How­ever, Nimesh Shah of Blick Rothen­berg, the ac­coun­tancy firm,

The cou­ple paid £3,000 for a di­vorce but avoided £30,000 in stamp duty

warned buy­ers to “be care­ful” with this ap­proach. A plot of land that a pre­vi­ous owner had de­vel­oped could be taxed at the higher res­i­den­tial rate.

While build­ing your own home can ap­pear daunt­ing, around 7pc to 10pc of all new homes are built in this way, ac­cord­ing to a Com­mons Li­brary brief­ing pa­per. It is also pos­si­ble to fi­nance the project with a self-build mort­gage, avoid­ing the need to have large cash sums in ad­vance.

4 Buy in bulk

An­other way to wa­ter down the sur­charge is to buy sev­eral homes from the same seller. This can qual­ify for “mul­ti­ple dwellings re­lief ”. It means the stamp duty paid is based on the av­er­age value of all the prop­er­ties bought, which could save you money.

Those who buy six or more prop­er­ties in one trans­ac­tion can cut their bill fur­ther, as the tax au­thor­i­ties deem this to be a com­mer­cial rather than a res­i­den­tial pur­chase – which means lower rates and no tax sur­charge.

But buy­ing in bulk is un­likely to be an op­tion for most buy­ers. Mr Ole­jnik said: “We hardly see it at all, to be hon­est. It’s rare for peo­ple to buy in bulk and the op­por­tu­ni­ties are few and far be­tween.”

The ad­van­tage of this method is that it is laid out by HMRC and so is un­likely to change.

5 Get di­vorced

Some peo­ple are so des­per­ate to avoid the tax that they will even con­sider split­ting up from their part­ner. Cur­rently, a mar­ried cou­ple count as one party when it comes to pay­ing stamp duty on an ex­tra prop­erty.

Even if the main home is wholly owned in one part­ner’s name and the ad­di­tional prop­erty is bought by the other part­ner, ex­tra stamp duty is still payable.

Mr Shah said he had seen a re­cent case where a Lon­don cou­ple got di­vorced to avoid the sur­charge.

He said: “Ob­vi­ously this was an am­i­ca­ble di­vorce. They would have had to pay the sur­charge on the prop­erty they were buy­ing, so de­cided to get di­vorced and buy the prop­erty in the name of the per­son who didn’t own the ex­ist­ing prop­erty, then look to re­marry in the fu­ture.”

The cou­ple paid £3,000 in le­gal fees to get di­vorced but avoided £30,000 in stamp duty in the process.

Mr Shah said he knew of cou­ples who were de­lay­ing their mar­riage for the same rea­son.

6 Get some­one else to pay

If you’re pre­pared to drive a hard bar­gain – made eas­ier in a buy­ers’ mar­ket – it can be pos­si­ble to per­suade the seller to pay to en­sure the deal goes through.

If a seller has had the prop­erty on the mar­ket for a while, or needs the money quickly, they may be pre­pared to pay the stamp duty them­selves. This has be­come a com­mon ploy among de­vel­op­ers of new build­ings dur­ing the re­cent mar­ket slow­down.

The op­tion that was...

An­other way to avoid the sur­charge was shut down by HMRC. The loop­hole al­lowed a cou­ple who jointly owned a prop­erty to es­cape the sur­charge on the pur­chase of a sec­ond prop­erty by giv­ing a share in their home to some­one else.

If the cou­ple owned 50pc of the prop­erty each, one of them could give just 1pc of their half to their part­ner, or to a child. They could then claim they had no “ma­jor in­ter­est” in the prop­erty and there­fore would not face the sur­charge if they bought the sec­ond home. This loop­hole was closed in the Novem­ber Bud­get of 2016.

Buy­ing a wood­land home could be used to cir­cum­vent the stamp duty sur­charge

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