Dear Gareth,
My wife and I are in the process of downsizing and we have made an offer on a new property in England that has been accepted.
My current property is co-owned with my sibling, as we both inherited it, and we won’t have sold it by the time we complete the purchase of our new property. But the current property isn’t in my wife’s name, meaning that she has not been a property owner before.
Could we purchase the new property in her name so that we can reduce the stamp duty we pay?
Name and address supplied
Gareth says…
It’s worth running through how stamp duty land tax works to understand what your options are. In England and Northern Ireland, the amount of tax you pay when you purchase a property is tiered.
You pay nothing on the first £125,000 of the property’s value; 2 per cent on the amount between £125,000 and £250,000; 5 per cent between £250,000 and £925,000; 10 per cent on the proportion between £925,000 and £1.5m and 12 per cent on anything above £1.5m. These rates apply to anybody who has owned a home before. Rates differ in Scotland and Wales.
The discounts available
I can see that there are two possible ways of reducing your stamp duty tax bill. If you already own a property, and you are purchasing a second property, there is a 3 per cent surcharge added to your stamp duty bill at each tier.
The other benefit you may be looking to take advantage of is the stamp duty relief offered to first-time buyers. They pay nothing on the first £300,000 of a property’s value, and 5 per cent on the amount between £300,000 and £500,000, saving as much as £5,000 compared to the standard rates.
There are some caveats, though. This discount only applies to properties worth £500,000 or less, and can only be used by genuine first-time buyers – where any owner of the property has never owned a propertybefore.
The fact that you are married scuppers both of these potential savings. For the purposes of stamp duty calculations, married couples and civil partners are treated as one “unit” so although your wife doesn’t currently own a property, she will be treated as though she does when you buy your new property as you already own an interest in another property.
On the bright side
As you say you are unlikely to have sold your current property by the time you complete, you’re going to be buying a second property. Even if you put the property solely into your wife’s name, you would still need to pay the 3 per cent additional stamp duty that applies to second homes. But there is some good news here. You can claim back the extra stamp duty you pay if you sell your current property within three years of the purchase date of your new home.
And on an even brighter note – if your purchase completes by 31 March, you will get a discount on your stamp duty bill due to changes made to the tax to stimulate the market during the pandemic.
You will pay 3 per cent up to £500,000 and 8 per cent on the amount between £500,000 and £925,000, rather than 3 per cent on the amount up to £125,000, 5 per cent on the amount between £125,000 and £250,000 and 8 per cent on the amount between £250,000 and £925,000. Then you can claim back when you sell, which means that if you are buying a new property worth £500,000 or less, you won’t pay any stamp duty at all.
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Gareth Shaw is head of money at Which?. To have your question featured on this page, email business@inews.co.uk.
