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