We're paying thousands more than expected on our stamp duty
When buying a property, ensure that you factor in the cost of Stamp Duty before purchasing. Believe me!
After our offer had been accepted and we'd instructed the conveyancers to oversee the purchase process, we were sent a breakdown of their costs. Legal fees, transaction fees, drainage and water searches were all there. Honestly, they don't miss a trick! Yet, the figure that jumped out at us was our Stamp Duty costs. Let me explain why.
How much stamp duty should I pay if I own two properties?
The situation we find ourselves in isn't particularly common. My partner is a first-time buyer, whereas I own a property that I rent out. But we live together in a different rented property. There is no intention of selling the house that I own.
Initially, we believed that we would pay the higher Stamp Duty rate as I would own two properties. According to the Government Stamp Duty website: "You'll usually have to pay 3% on top of SDLT rates if buying a new residential property means you'll own more than one."
The website continues: "You will not pay the extra 3% SDLT if the property you're buying is replacing your main residence and that has already been sold."
However, this is where our confusion began.
We classed the property that we live in and rent as our main residence as we've lived there for two years, and our bills, bank statements and council tax are paid from that address.
We looked a little further into it because we could potentially be saving thousands. We came across this article, which we could relate to, and this also backed up the belief that we should only pay the standard rate and not the higher rate.
We even ran our situation through the Government's Stamp Duty Calculator, and it came out to the same conclusion that we should pay the standard rate only.
So, after the research we went through before viewing houses, putting offers in, and just the general stress of buying a home, to see the figure thousands of pounds higher than expected was a shock.
Speaking to HMRC
We raised the issue with the conveyancers, showing them what we'd found and what we believed we should be paying. Naturally, they stuck to what they thought we should pay, which led to us contacting HMRC for a definitive answer.
As with the conveyancers, we explained our situation, pointed to the wording on the Government's website and stated that we believed that we shouldn't be paying the higher rate of tax.
Essentially, our case came down to the definition of 'main residence'. The Government's definition of 'main residence' is that it must be owned and not necessarily the place where most time is spent. Therefore, our rented home (that we share) isn't technically classed as our 'main residence', but the home that we rent out is - as this is owned. You can see where our confusion stemmed from. Feel free to read up on their definition here.
Whether comforting or not, apparently, this is quite a common issue that is raised. Although, having an additional £5,000+ on the total purchase price of the property doesn't sit so well.
If there's anything you learn from these blog posts, let it be to do all of your homework before entering into this process and know how much you'll be spending. Buying houses ain't cheap!