I felt prompted to write this article on a subject which is actually upon us as I type. I often peruse various online property forums and generally keep up to date with industry news (as one does!) and happened to come across an interesting scenario.
The post I read on this particular forum last week was written by a lady who, together with her husband, owns several buy-to-let properties in an area of Northern England.
It was in relation to the new Stamp Duty changes which are imminently coming into effect. Now, she and her husband are in a position where they are currently renting the home they live in and therefore have no 'PPR' (Principal Private Residence) as they sold this 5 years ago.
As mentioned, they own other BTL properties and were currently buying a new home (PPR) to live in. In light of the new legislation about owning '2 or more properties' after a property transaction, they enquired with the Stamp Duty Tax Office about whether their own personal residential purchase would fall within this new tax regime.
Unfortunately, it does! If they had been selling their own PPR (or had sold it only up to 36 months ago) and replacing it with a new one, then they would not have been affected. However, the fact that they have been renting all this time means that they are in the unfortunate position of being caught by the new law.
This, naturally has come as a bitter blow, as the additional surcharge covers the entire purchase price of the property, thus rendering them unable to follow through with the purchase as it will be too expensive for them to now move.
As the final details of the new policy were not published until 16th March, this gave them only a two week window of opportunity to try and sort out the impact of the ruling and aim for completion before the 1st April.
I feel utter sympathy for these people who have clearly worked hard to build up a small portfolio of properties for their retirement to now be hit with a surcharge due to a situation out of their control, unless they can complete swiftly.
This ruling could have an impact on many other 'accidental' landlords across the country in the future who were unable to sell properties post credit crunch and have moved into rental accommodation in other parts of the UK whilst renting out their former residence.
This proves to be a really important factor in case you find yourself in this predicament! Essentially, the following applies:
* If you currently rent your own home and own a portfolio of properties, then you will be subject to paying the extra surcharge of 3% across the whole amount of any new residential purchase
* This ruling is relevant from the 1st April 2016 and will therefore affect any transactions which fall within this remit from this time onwards unless the ruling is changed.
A couple of solutions may be as follows:
1. If you intend to buy a property as your PPR and you own just one property which was previously your PPR, but rent your current home, then as long as you sell that previous PPR within 36 months, you will receive a refund on the extra SDLT surcharge.
2. If you own more than one property alongside renting your current home, then you could potentially move into one of your BTL properties and register it as your PPR (which can be backdated as much as 2 years, I believe). Please note that you MUST find out about changing any mortgage product you have on the property to accommodate the move. It is highly recommended to speak with your Mortgage Company or broker about the implications of doing this beforehand so that you do not breach the terms and conditions of any mortgage you have. You could live there for at least 6 months before selling and buying another property to live in, thereby negating the extra SDLT charge. All this could be well worth it on a higher value property.
So, take heed of the above if you intend to purchase your own home yet are currently renting, and if you own one or more other properties. I hope this will save some individuals from a nasty surprise!
For more invaluable property 'insights' hop across to here and grab your copy of my 'Golden Rules' report where you'll find an abundance of helpful info. :-)
Hazel Hazel de Kloe Property Investor | Property Mentor | Speaker | Author
The contents of this article are for educational purposes only and we make no recommendation of any particular property purchase.
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Why Property Works 2016 | www.whypropertyworks.co.uk