A conversation with a family member recently highlighted the complexities that come with investing in property and how it is so important to consider all the tax implications of buying, selling, and owning the property in your sole name or joint names. The impact of stamp duty and marriage could have a significant on your finances.
Recent Changes to SDLT and CGT
From April 2016 buy-to-let property investors and those purchasing second homes have been hit with an additional 3% stamp duty land tax (SDLT) in comparison to people purchasing a first home or replacing a current residence. In real terms, this means that the stamp duty payable on a £250,000 property will jump significantly from £2,500 to £8,800.
Not only are property investors being hit with this SDLT surcharge on the purchase of a property but they are now also disadvantaged when they come to dispose of the property as they do not benefit from the reduced rates of capital gains tax (CGT) available to other types of investors.
From April 2016 the standard rates of CGT have dropped from 18%/28% to 10%/20% depending on whether you are a basic rate or higher rate taxpayer. However, these new rates do not apply to gains arising on residential property.
“When it comes to Stamp Duty and Marriage, timing really is crucial”
When you come to sell residential property, the SDLT paid on purchase is an allowable deduction when calculating the capital gain arising and so tax relief will be obtained for that cost in due course. However, being hit with these extra costs on acquisition and disposal, along with the future restrictions on tax relief available for finance costs, is making investing in property seem less and less attractive.
Where you are entering into property transactions, the timing of acquisitions and disposals can be key in avoiding the SDLT surcharge and so it is always advisable to take advice before exchange of contracts.
The family member I referred to above is getting married later this summer. She owns no property in her own name but her fiancée owns a property which they both lived in until recently. His property has since been let out. They have moved into an annexe attached to the parents’ house temporarily and are looking for a new property to buy together. If they purchase a property in her sole name before they get married then the higher rates of SDLT will not apply because, when the property transaction is complete, they will each own one residential property. Once they are married they can only have one residential property between them and so purchasing a new property after they are married would result in a higher SDLT charge. The pressure is now on to find a house! As you can see timing really can make a huge difference, on a £250,000 house this could save them £6,300.
If you have any queries regarding the changes from April 2016, or your personal property position, please do get in touch. Remember that with stamp duty and marriage, timing really is the key.