‘Can we avoid £22k in stamp duty?’

“My partner and I have just had an offer accepted to buy a house in Leamington Spa, Warwickshire. We hope to complete in the next few months. We are not married and at the moment live at my parents’ house. Before that we lived in a flat that I owned and sold in April last year.

My partner has a flat in Aberdeen that he bought in 2013 and lived in for two years before renting it out and moving in with me. He put his flat on the market early last year and the tenants moved out, but sadly the flat has not sold, even though he listed it for a lot less than he bought it for almost a decade ago.

If we complete our house purchase before he sells the flat, he will have two properties. So will we have to pay the 3% stamp duty surcharge payable by owners of second properties and landlords?

My partner has been paying bills and a mortgage at his flat, which is furnished, and has spent quite a bit of time there over the past year now the tenants have left. I wondered, if we moved in temporarily, would the flat count as our main residence?

It sounds as though if we were married we would not need to pay the additional rate because my old flat would be classed as a shared main residence and the rules would allow us to buy a new main residence to replace that without having to pay the surcharge.

What if we were to get married before we buy the new property? Would we then be exempt from the surcharge? It would be £22,000, so it’s a significant sum.”

Emma

Troubleshooter says:

Much of the housing market in the UK has been overheated over the past year, but there are some pockets, such as Aberdeen, where it has been harder to find buyers.

The silver lining of property prices falling is that your partner won’t have to pay capital gains tax when he sells his rental flat because it hasn’t increased in value since he bought it.

However, anyone who buys a second home or buy-to-let property has to pay a stamp duty surcharge of 3% on top of the normal stamp duty rate. This has been in place since 2016 in a bid to free up properties for first-time buyers, as well as to raise money for the government, of course.

We outline the stamp duty thresholds.

I can see why you want to avoid forking out £22,000 on the surcharge, but I don’t think you can.

There is something called the “replacement main residence” exemption for people who buy a new home before selling their old one — if there is a long delay in finding a buyer or their sale takes a long time to go through, meaning that they temporarily own two homes.

People in this situation have to pay the surcharge on their new property, but can claim a stamp duty refund as long as they sell or give away their old home within three years of buying the new one.

To be eligible for a refund, however, the sold property must have been the owner’s main residence. It is unlikely that your partner’s flat would be considered his main home given that he was renting it out for a long period and living with you.

Sean Randall from the accountancy firm Blick Rothenberg said HM Revenue & Customs will look at a range of factors to determine whether a property is a main residence, such as where the owner works, how the property is furnished, which address is used for correspondence, and even where the owner is registered with a doctor or dentist.

“He cannot elect which property is his main residence, and merely occupying it is not enough,” Randall said.

Living in the flat temporarily until you move into your new house will not convince HMRC that he was based there permanently.

You mentioned that you and your partner want to get married. Married or civil partners are treated as one unit for stamp duty purposes. If you had been married when you were living in your flat together as your main home, he would have been deemed to own a share of it even if his name was not on the deeds.

In that case, you would not have to pay the surcharge on a new house because you would both be replacing your main home for another main home, which you are allowed to do regardless of any other property you own. His rental flat wouldn’t come into the equation.

Getting married now would make no difference because you weren’t married when your flat was sold.

Randall said you could avoid the surcharge by buying the property in your sole name — before you get married — but the best way would be to sell the Aberdeen flat before buying the new house.

You have your fingers crossed that you manage to find a buyer. If not, you said you are thinking of renting it out again to make some of the money you will spend on the surcharge.

 Here are six ways to avoid stamp duty.