‘As first-time buy­ers, we’ve paid £18,950 ex­tra in tax’

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Com­plex stamp duty rules mean tak­ing a stake in her par­ents’ home has cost one reader thou­sands, writes Sam Mead­ows

When Sa­har Chowd­hury and her sis­ter took an equal stake in their par­ents’ home in 2011 they had no idea that seven years later it would re­sult in one of them pay­ing al­most £20,000 of ex­tra stamp duty.

The orig­i­nal de­ci­sion, made with in­her­i­tance in mind, seemed sen­si­ble at the time. The sis­ters’ lives have fol­lowed a sim­i­lar pat­tern since. They both mar­ried and for a while lived in rented ac­com­mo­da­tion with their hus­bands. Now both cou­ples are about to buy their first mar­i­tal homes.

But Bri­tain’s com­plex stamp duty rules – which even so­lic­i­tors and of­fi­cials at HM Rev­enue & Cus­toms bat­tle to com­pre­hend – mean one cou­ple will pay duty at a top rate of 8pc, and the other will pay it at a rate of 5pc.

If both cou­ples bought prop­er­ties for ex­actly the same price, one cou­ple would pay more than twice as much duty as the other.

Changes in stamp duty in­tro­duced in 2015 mean re­searcher Dr Chowd­hury, 32, and her hus­band Robin McGrath, 29, face a stamp duty bill of £27,200 – a rate which is al­most twice that which her sib­ling will pay – on the £465,000 pur­chase of their first home in Winslow, Buck­ing­hamshire.

The dif­fer­ence comes down to a quirk of the sys­tem re­lat­ing to the 3 per­cent­age point sur­charge levied on ad­di­tional prop­erty pur­chases.

Even though the sis­ters are both buy­ing their first homes, their stake in their par­ents’ Stafford­shire prop­erty means they are treated as if they are buy­ing a “sec­ond home”.

The rules, aimed at curbing the buy-to-let mar­ket, con­tain a loop­hole whereby land­lords, and other home movers, can dodge the sur­charge if they are re­plac­ing their “main res­i­dence”, as op­posed to ex­pand­ing their port­fo­lio.

This cre­ates a sit­u­a­tion whereby those who other­wise would be “first­time buy­ers”, but have a stake in their par­ent’s home for in­her­i­tance pur­poses, must pay the sur­charge, while land­lords who could have a port­fo­lio of sev­eral hun­dred prop­er­ties can avoid it.

The Trea­sury has closed some loop­holes that dis­ad­van­taged di­vorc­ing cou­ples or al­lowed wealthy cou­ples to avoid pay­ing the sur­charge, but many are still un­fairly caught. As Dr Chowd­hury’s sis­ter’s hus­band pre­vi­ously owned a prop­erty, which has been sold, the cou­ple are treated as re­plac­ing a main res­i­dence.

Be­cause nei­ther Dr Chowd­hury nor Mr McGrath has ever owned a “main res­i­dence”, they have no means to avoid the ex­tra tax bill.

With­out hav­ing to pay the sur­charge their £27,200 duty would be as lit­tle as £8,250, less than a third.

Mr McGrath, a de­sign en­gi­neer for a For­mula One team, said: “Land­lords who own hun­dreds of prop­er­ties won’t be caught out by this if they’re re­plac­ing their home. It’s just peo­ple like us.”

Dr Chowd­hury, a re­search sci­en­tist, said: “The im­ple­men­ta­tion of this law hasn’t been han­dled well. It seems like it wasn’t prop­erly thought through, and this high­lights an un­fair­ness.”

Nimesh Shah, a tax ex­pert at Blick Rothenberg, the ac­coun­tants, said the sur­charge has cre­ated a num­ber of un­fair si­t­u­a­tions that catch out those who were not in­tended to be af­fected.

“It’s a sub­tle dif­fer­ence in their cir­cum­stances that means one of them is hit with the sur­charge. There’s an un­fair­ness there,” he said.

“She’s be­ing pe­nalised on two fronts as she has never been a

Another op­tion, al­beit very ex­treme, would be for Dr Chowd­hury and Mr McGrath to di­vorce.

Mar­ried cou­ples are treated as a sin­gle unit when as­sess­ing stamp duty li­a­bil­ity, so if they sep­a­rated and Mr McGrath were able to buy alone, he would not pay the sur­charge. But he might strug­gle to find a mort­gage and he would be the sole owner.

The cou­ple will also be un­able to claim the stamp duty ex­emp­tion for first-time buy­ers, an­nounced by the Chan­cel­lor, Philip Ham­mond, last year.

As the value of their prop­erty is less than £500,000 they could have saved £5,000 in duty, meaning the stake in her par­ents’ home has cost them £18,950.

Jeremy Leaf, for­merly of RICS and an es­tate agent in north London, said: “They aren’t de­riv­ing ben­e­fit from their par­ents’ prop­erty in terms of liv­ing there, but it means they must pay the sur­charge.

“This pol­icy has cre­ated a lot of un­in­tended con­se­quences for many buy­ers.”

‘It seems like it wasn’t prop­erly thought through, and this is an un­fair­ness’

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