Can I avoid £213,750 stamp duty on my £2m hol­i­day home?

The Daily Telegraph - Your Money - - FRONT PAGE -

My wife and I have just bought a £2m hol­i­day home in Corn­wall, but we face a stamp duty bill of more than £200,000. This is prov­ing quite dif­fi­cult to pay, as I lost my job last year. Is there any way to get around it? DC, CHIP­PING NOR­TON

Be­cause of your ex­ist­ing £3.6m house in Not­ting Hill, west Lon­don, and £1.5m home in the Cotswolds, you have fallen foul of the new three per­cent­age point stamp duty sur­charge, which ap­plies when any ad­di­tional prop­erty is bought be­yond a main res­i­dence.

Th­ese rules were brought in by you and your chan­cel­lor, Ge­orge Os­borne, in an at­tempt to make buy-to-let in­vest­ing less at­trac­tive. The sur­charge has ap­plied since April last year.

Be­fore April 2016 your £2m hol­i­day home pur­chase would have at­tracted stamp duty of £153,750. A large chunk of that would have been ac­counted for by the por­tion of the pur­chase price above £1.5m, which in­curs a stamp duty rate of 12pc.

Now the bill is much higher be­cause of the three per­cent­age point sur­charge, which ap­plies to the en­tire value of the trans­ac­tion. That adds £60,000 to the bill, tak­ing the to­tal to £213,750. Luck­ily, how­ever, you and Mr Os­borne had the fore­sight to leave a num­ber of loop­holes in the sys­tem – so there are some pos­si­ble ways to cut the bill.

Our ex­pert re­porters an­swer read­ers’ ques­tions. This week:

helps one prom­i­nent cou­ple with the thorny is­sue of prop­erty taxes

Op­tion one: make it your main res­i­dence The sur­charge does not ap­ply if a home is pur­chased to re­place a main res­i­dence. As the trans­ac­tion has al­ready hap­pened, you would need to sell your pre­vi­ous main res­i­dence within three years to claim a £60,000 re­fund.

Op­tion two: get di­vorced

The­o­ret­i­cally, you could have got di­vorced be­fore the trans­ac­tion. If all of your ex­ist­ing prop­er­ties had been trans­ferred into one of your names, and the other per­son had bought the new Cor­nish house as the sole prop­erty in their name, the sur­charge would not have ap­plied.

How­ever, in prac­tice this is un­likely to have worked. Firstly, you would need to have shown that your mar­riage had bro­ken down. As you are hap­pily mar­ried and liv­ing to­gether, this wouldn’t be pos­si­ble with­out ly­ing.

Op­tion three: buy some wood­land

Another op­tion, which is yet to be tested by the Bri­tish courts, is to buy a small plot of wood­land along with the house, and have the pur­chase des­ig­nated as “mixed-use”.

Tech­ni­cally, a small piece of wood­land – which could be bought for as lit­tle as £1,000, say – can be bought in a dif­fer­ent area en­tirely to the new house as long as it is bun­dled into the pur­chase.

The stamp duty rates on com­mer­cial and mixed-use prop­erty are much lower. Suc­cess­fully ex­ploit­ing this loop­hole would re­duce the to­tal stamp duty bill on your £2m home to £89,500 – a sav­ing of £124,250, less the cost of the wood­land and any ad­di­tional costs in­curred due to the more com­plex trans­ac­tion.

In­dus­try in­sid­ers say this method is be­gin­ning to be ag­gres­sively used, which may well lead to ac­tion by HM Rev­enue & Cus­toms.

For­mer prime min­is­ter David Cameron and his wife Sa­man­tha have just bought a £2m Cor­nish hol­i­day home. Could they cut their stamp duty bill?

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