Will new stamp duty rules apply to expats?
I read that the Government wants to add a stamp duty surcharge of up to three percentage points for overseas buyers. My daughter is British, but lives in France. If she moves back next year and buys a house, will she pay this? MB, VIA EMAIL
Theresa May announced this plan, expected to raise £170m a year, at the Conservative party conference. The detail is light but as things stand your daughter will pay the extra charge.
Philip Munro of Withers, a law firm, said: “British expats are one of the groups potentially adversely affected by this measure, if it is implemented. Expats are, by definition, non-UK resident, but will often consider the purchase of a property to live in on their return to the UK.”
Anyone buying a second home worth £250,000 would currently pay £10,000 in stamp duty. This would include the existing surcharge on second homes. If an additional levy was brought in on top of this, then the tax paid in this example would be £16,249.
The first caveat is that this is a proposal and there is no date for enforcing it yet. If your daughter buys before the policy comes in, she may dodge the extra stamp duty. The second is that the details have yet to be thrashed out. The idea behind the policy is to help nationals buy houses without so much competition from overseas investors, so the final wording may exclude British expats.
A final caveat is that the level of any surcharge is also up for debate, and it may not be as high as three percentage points, so even if your daughter does end up paying, it may not be too punishing.
The current stamp duty system is already tricky to understand and has led to many buyers overpaying then facing long delays for a refund. Hopefully your daughter will avoid this.
Our finance reporters and Adam answer readers’ questions. This week: property
tax year, when the tax benefits are highest? My mortgage is for £250,000. HK, VIA EMAIL
Many landlords are facing increased costs as the Government removes tax breaks. Previously, property investors were allowed to deduct all their costs and mortgage interest payments as expenses, reducing their tax liability.
However, changes that will be phased in entirely by April 2020 mean this relief will apply at the basic rate of tax only, rather than the landlord’s marginal rate.
Spending more in the current tax year, when the relief is at its greatest, while reducing costs in future tax years, is one way landlords could take advantage of these favourable tax conditions while they last.
Leeds Building Society is one lender that has launched a buy-to-let mortgage with a high fee and low ongoing rate. Landlords taking out this loan would be charged a hefty £2,499 fee but would benefit from a low, fixed interest rate of 1.44pc until August 2020.
This could potentially be tax efficient as you are spending more money that can be offset against tax in the years where you can receive the most relief.
Alison Page, until recently a property tax expert at the Property Hub, compared the overall cost of this mortgage with a low-fee, higher-rate product from Post Office Money.
For example, a product recently offered by Post Office Money had a cheaper £495 upfront fee but the interest rate was 1.66pc, fixed until September 2020. Using your £250,000 loan as an example, Miss Page said the Leeds mortgage would cost a higherrate taxpayer £7,331 between now and the end of the taper, after tax relief of £2,695 is deducted.
However, the Post Office Money loan would still have worked out cheaper. Despite this mortgage being eligible for a smaller level of tax relief – £2,457 – the overall cost over the fixed term is much lower at £7,045.
But Miss Page said that over a two-year term the Post Office loan will be more cost-effective than the Leeds option, as although the tax relief is lower, the total expense is also lower.
Basic and additional-rate (45pc) taxpayers would also be better off taking out the Post Office Money mortgage in this instance.
However, for some smaller loans it may be more tax efficient to take out a high-fee, low-rate mortgage.
In your case, Miss Page said you should remember to remortgage after the two-year fixed rate period is up to ensure your costs remain as low as possible.
‘No one, not even HMRC, can give me an answer’
Second home owners paid £4bn in stamp duty in 2017-18