Love and marriage – or how not to pay the increased Stamp Duty Land Tax on additional properties
“Tax is but the guinea’s stamp,” you might misquote Robert Burns when trying to work out the changes to Stamp Duty Land Tax (SDLT) over the last few years, “And this man’s confused for a’ that”.
In the good old days, SDLT was a pretty simple affair. If you bought a residential property (such as a buy-to-let house or second home) for under £125,000, you didn’t pay any SDLT. If you paid more than that you paid an increasing percentage on the higher slices of purchase price, going up to the maximum of 15% on the price in excess of £1.5m.
Then an extra charge was added for SDLT aimed at the buy-to-let sector. The trouble is that the taxman now hammers what is seen as an abuse or a cause of distortion in a market. But a hammer is blunt instrument, and in this case is an additional residential property SDLT charge. It is calculated as 3% on the purchase price of the additional residential property if it costs more than £40,000.
3% looks fairly low compared with the 15% paid on the top slice of expensive homes. But at the £250,000 level,the sort of price we are paying for a buy-to-let one or two bedroom flat in the South East, the increase is highest. The ‘old’ SDLT bill amounts to £2,500 but if this flat is an additional property the ‘new’ SDLT bill is £10,000. It has quadrupled – now that’s Hammer Time, and the taxman certainly doesn’t think ‘U Can’t Touch This’!
Now you may think the hammer blow has hit its intended target, but hold hard and let’s consider love and affection. Unless, of course, you are a heartless cynic – and I steadfastly refuse to believe that you are.
Say a couple are getting married, and one partner owns a property and wants to keep it and let it out. If the couple then buy a new home, if the property-owning half of the arrangement has their name on the deeds, they then have to shell out SDLT.
So, how do you avoid this? In a nutshell, you need to ‘Buy, marry, give’ – in that order.
To give an example, after tying the knot, the owner of the new property could transfer half the property to their spouse. This works best if the property has been bought outright – if you transfer half the property, you transfer half the mortgage – and the taxman wants his cut of SDLT on it.
In a similar vein, if you want to help your children by buying property while they are at university or carving their niche in the world, the way ahead is to go for a parental guarantee on the mortgage. If you opt for joint ownership, because you own another property you’ll end up shelling out for SDLT. And frankly, money that you don’t have to give the taxman is money you can use for more useful or entertaining purposes.
Unfortunately, you can’t wangle these SDLT rules by electing which property you live in as your main residence. For SDLT, unlike Capital Gains Tax, you simply can’t do it.
And there’s the rub. The irony in the new proposals is that the Government says it wants to support married couples. But under this system, the biggest winners are those who are not married, happen to own property outright and then get married. Whether it encourages any couples to get divorced and then re-marry to maximise their SDLT gains remains to be seen – but the fact it is even possible is sure to make many of us keep scratching our heads.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.