PROPERTY CLINIC: How long do I need to own a property as my home before letting it to avoid extra stamp duty?
- Buy-to-let properties face a 3% stamp duty surcharge
- Tax hike hits second homes as well as investment properties
- However, first-time landlords are exempt if they own no other properties
I have never owned a property before and would now like to buy one but may also have to move for work and never actually move into it.
Is there any time period that you must hold a property as residential before letting to save paying the stamp duty?
There is a 3 per cent stamp duty surcharge that is applied to some property purchases
MailOnline’s property expert Myra Butterworth says: The rules around whether buyers have to pay an extra chunk of stamp duty or not may initially appear confusing.
It is perhaps helpful to remember that it is not the use of the property that dictates whether or not the surcharge applies but whether or not you already own a home.
The surcharge only applies to buy-to-lets and additional properties.
Most people who move home only end up owning one property at any given time, as they usually sell to buy. However, sometimes this doesn’t happen and they may hold onto their original property for a while.
If you’re moving home and have not sold your existing property, you’ll have to pay the additional 3 per cent stamp duty, and then claim back the 3 per cent surcharge within three years once you have sold.
Rob Dix, director of The Property Hub, said: I can understand the concerns. The 3 per cent surcharge for second homes and buy-to-let properties is another headache for property investors at a time when they are already being hit hard by tougher lending criteria requirements and tax relief changes.
If you move before selling your home you have three years to claim the 3 per cent surcharge back
And it’s not just landlords and those able to afford a second home who are being hit by the hike.
It affects people who are moving house and buy their new property before they’ve managed to sell their existing home.
These buyers have to pay the extra 3 per cent and then wait, in some cases, months to get the money back once their home is sold.
If you move before selling your home you have three years to claim the 3 per cent surcharge back, once you have sold.
HMRC says it aims to process refunds within 15 days but it has been suggested that buyers have waited as long as two months for the money.
First-time landlords are except from the surcharge if they own no other properties
Where does the 3% surcharge apply?
What’s important to note, however, is that it is not the use of the property that dictates whether or not the surcharge applies, but whether or not you already own a home.
If you already own a property and this is a second home then whether you are planning on renting it out or using it as a weekend escape you’ll still have to pay the additional 3 per cent stamp duty.
The surcharge is payable on any ‘additional’ property, regardless of its use.
If you’re thinking of buying a second home, therefore, you’ll need to include the extra stamp duty in your calculations.
The good news is, if you don’t own another property you won’t have to pay the extra 3 per cent even if you are planning on letting the property to tenants.
The surcharge applies to second properties so if you’re a first-time buyer and a first-time landlord (and don’t already own a home) you are exempt from the charge.
Some may think such a scenario is rare – that someone would buy a house to rent out before actually getting onto the property ladder themselves – but it’s not as unusual as you might think.
Many people are recognising the benefits of investing in bricks and mortar but don’t necessarily want to live in the area in which they can afford to buy.
Putting their money into property and then renting it out to tenants can be one way of utilising their savings if they don’t want to buy a home to live in or your can’t afford to buy where you’d like to live.
Finally, if you are able to snap up a bargain and buy a property for £40,000 or less the surcharge won’t apply – regardless of what else you own. These transactions are considered low value and do not have to be reported to HMRC.