Will we pay extra stamp duty if we buy a home and keep our current one?


My husband and I are looking to buy a new home, but we don’t want to sell our current house now, as we think we can hold on to it until a better time to sell.

We also want to avoid the home moving stress that comes with selling and buying at the same time. 

Luckily we don’t need to sell to buy and plan to sell our current home in the next year or two, hopefully when the property market picks up again. In the meantime, we will rent out the property we buy now for a year or two and then move in when we sell our current home.

Does this mean we will have to pay the extra stamp duty surcharge or can we claim this back as it is our main home? If so, will it be easy to reclaim and what steps will we have to follow to ensure we are not turned down as that could cost us dearly.

SDLT: In September, the stamp duty threshold for house buyers has rose from £125,000 to £250,000 and from £300,000 to £425,000 for first-time buyers.

Ed Magnus of This is Money replies: Although this is a nice problem to have, you’re sensible to be considering the potential stamp duty ramifications.

The rates of stamp duty are set at a percentage of the purchase price, which varies depending on the value of the property you are buying.

For any typical home mover, who isn’t a first-time buyer, they don’t pay any stamp duty up to the value of £250,000.

This will remain the case until 31 March 2025, when the nil rate band will be reduced back to £125,000 for a typical home mover. 

You can check how much you would pay to move home with our stamp duty calculator. 

Under the current stamp duty system, the portion of a property’s purchase price between £250,001 and £925,000 sees the tax charged at 5 per cent, between £925,001 and £1.5 million it rises to 10 per cent, and above £1.5 million it is charged at 12 per cent of the purchase price.

However, those purchasing an additional home on top of their main residence are required to pay an extra 3 per cent surcharge on top.

This covers buy-to-lets and also second homes and any other situation where the new property you are buying is not replacing a main residence that has already been sold.

STAMP DUTY RATES
Band Stamp duty land tax rate  Additional rate for landlords / second homes
First-time buyers pay 0% to £425,000 then normal rates apply 
£0 – £250k 0% 3%
£250,001 – £925k 5% 8%
£925,001 – £1.5m 10% 13%
£1.5m + 12% 15%
* No stamp duty is paid on property transactions costing less than £40,000 as these are considered low value and not reported to HMRC 

The complication with your situation is that you think your main residence won’t be sold for another year or two and the new property won’t be your main residence to begin with.

However, the government has rules on this exact situation.

If you have not sold your main residence on the day you complete your new purchase you’ll have to pay higher rates. This is because you own two properties.

However, you can apply for a stamp duty refund if you sell your previous main home within 36 months, so it will be very important to bear this timeframe in mind.

If it takes longer than 36 months to sell your previous main home there is an exceptional circumstances scenario where you may still be able to claim the money back, you can find the stamp duty repayment rules at gov.uk. 

How much stamp duty could you claim back?

It will be important to reclaim the surcharge, as it can add up to a significant amount depending on the purchase price of the property you are intending to buy.

A £300,000 property for example without the 3 per cent surcharge will cost £2,500 in stamp duty. However, with the surcharge included, it will cost you £11,500 in tax.

A £500,000 property would cost £12,500 without the surcharge included. However with it included, the tax will set you back £27,500.

If you’re able to stomach the initial surcharge, your plan may work, given you will be able to claim it back at a later date. However, it will involve tying up money for a substantial amount of time and you will need to leave plenty of time to sell.

It may prove a way of avoiding the stresses and potential disappointment that can unfold when moving home.

It often takes months for a property sale to complete having gone under offer. Add that to a potentially long property chain of equally anxious buyers and sellers, and there is also a good chance of any deal collapsing.

Many property transactions are dependent on a chain of buyers and sellers, all relying on each other to ensure they can complete on their own purchase.

If any transaction in the chain is delayed or collapses, everyone in the chain is impacted.

We spoke to Tim Walford-Fitzgerald, a private client partner at accountancy firm HW Fisher for their tax advice and Mark Harris, chief executive of mortgage broker SPF Private Clients, on the assumption that the reader will be requiring a mortgage to fund their purchase.

What is the tax advice here?

Tim Walford-Fitzgerald replies: You’ll usually have to pay the 3 per cent surcharge on top of Stamp Duty Land Tax (SDLT) rates if buying a new residential property means that you’ll own more than one.

In your case you’ll be purchasing an additional property, and so you’ll have to pay this surcharge.

Be sure to factor this into your purchase price on completion. This surcharge applies even to the first £250,000 of the purchase price, that would normally be free from SDLT until 31 March 2025.

Surcharge: Those purchasing an additional home on top of their main residence are required to pay an extra 3 per cent surcharge on top.

Surcharge: Those purchasing an additional home on top of their main residence are required to pay an extra 3 per cent surcharge on top.

The good news is that as you intend the new property to become your main home, albeit not immediately, you may be able to claim a refund of that 3 per cent if you sell your existing home, and the new property becomes your home within three years of buying it.

You will have to claim the refund within 12 months of selling your current home. The form is called SDLT16 and it can be completed on-line.

You will need the details from the two transactions in order to work through the steps.

These will include the addresses and title numbers of both properties, the dates of the transactions, the unique SDLT transaction reference for the purchase of your new property and a calculation of the tax you are reclaiming.

However, if things don’t turn out the way you hope and you end up staying where you are, or if you decide to rent out your current home instead of selling it, you won’t be able to reclaim the 3 per cent surcharge.

You will also need to watch out for capital gains tax if this is not to be your final home.

The year or so renting out the property while the market improves may impact on your CGT exemption if you were to move again in the future.

This might be avoided if you were to only rent it on a short term basis, for example a holiday let style, rather than allowing someone to make it their own residents

What is capital gains tax? 

Capital gains tax, known as CGT, can be charged on any profit someone makes on an asset that has increased in value, when they come to sell it. This could be when selling a second home or company shares for example.

Britons are only required to pay CGT if the gain they make exceeds their £12,300 tax-free allowance in a single tax year. If this allowance is breached in a given tax year, they will be liable to pay it.

From April next year, this allowance is being reduced to £6,000 and then to £3,000 in April 2024.

On residential property, CGT is currently charged at 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers.

However, when selling a main home people are entirely shielded from this by what is known as principal private residence relief.  

For investments such as stocks and shares, basic rate taxpayers pay 10 per cent when exceeding their personal allowance, whilst higher rate and additional rate taxpayers pay 20 per cent.

> Read our guide to capital gains tax and how much you pay 

Could you get a mortgage on another home?

Mark Harris replies: If you need a mortgage to fund the purchase, there are a few things you need to consider.

Firstly, is there a mortgage on your current property that could be moved over to the new property?

You will need to check whether your lender will allow you to port it without incurring a penalty or whether there are any consent-to-let issues.

If a mortgage is required to purchase the new property, the usual income, affordability constraints and background commitments come into play.

The lender will also want to know where the deposit money is coming from. If it is raised against the existing property to be let via a let to buy, then if you are looking to sell in the short or medium term, consideration will need to be given to the mortgage type taken.

It is also worth considering a possible fall in value if you sell your existing home at a later date, although you mention that you are holding onto it until the market picks up.

However, nobody knows when this might be and you may need to sell sooner than you would like for whatever reason, which could result in a loss.

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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