While Wednesday’s Budget speech was light on detail about the tax hike to hit property investors from 1 April, guidance notes, issued to clarify who will be affected by the changes, reveal layers of complex rules.
A big change from the original proposal, where it was suggested anyone purchasing a buy-to-let property or a second home would be liable to pay the 3% surcharge, is the ‘main residence test’.
If the property being purchased is to be the person’s main residence, irrespective of how many other buy-to-let properties they may own, they will avoid paying the premium. In the same spirit, someone who already owns a holiday home, but is selling their main residence and buying a new main residence, will also be exempt.
The government provided pages of scenarios to illustrate how people will or won’t be affected which reveal how subtle differences can push a buyer into or out of the realms of the Stamp Duty surcharge.
One example reads: “I am currently living in rented accommodation, having sold my previous main residence nearly 18 months ago. I am now looking to purchase a new main residence within the next few months. I also have a number of buy-to-let properties. Will I have to pay the higher rates on the purchase of my new main residence?”
In its response the government said that provided the purchase of the new main residence is within three years of the sale of the previous one, the higher rate will not apply. The same response was given to a question about someone who owns a holiday home in Cornwall and a house in London. The London property is their main residence, which they are looking to sell in order to buy a new home to live in full time. The existence of the holiday home will not push the borrower into surcharge territory for the London purchase.
Jatin Patel, tax expert and founding partner of mortgage and financial advice firm Kinnison, said the main residence rules were sensible, but provided mortgage brokers with a tough challenge to help their clients understand their Stamp Duty liability.
To help people work out if the property being purchased is the main residence, if for example they live between two properties, the government has provided a lengthy checklist of questions to consider. It adds that buyers should not necessarily assume the main residence is the property where they spend most of their time. Only having one main residence at any given time is the linchpin for the exemption rules.
“It’s clear these rules are there to protect people who are genuinely changing their main residence but do own other properties,” said Patel. “Everyone will need to look at their own circumstances to work out if they are liable to pay more which is where it gets tricky. While it may be the lawyers responsibility ultimately to work out the tax charge, the client will look to the broker in the first instance to give them the answer before they get emotionally attached to the property.”
