British expats renting a home before buying a property to live in now face the potential of unexpected property tax bills of thousands of pounds.
Among the new UK stamp duty rules introduced in April is an unforeseen property tax trap for anyone renting a home before buying another to live in. The result is that they will pay an extra 3 per cent in stamp duty which may add thousands of pounds to the costs of buying a property.
The rules exempt property owners who are replacing their main home with another from the stamp duty 3 per cent surcharge. They pay stamp duty at the standard rates, which is 2 per cent for a property valued at more than 125,000 GBP and 12 per cent for one worth more than 1.5 million GBP.
Anyone who rents a home before buying however has to pay stamp duty at the enhanced rates because they are not replacing a home that they own with another. This means that an expat returning from overseas who rents a home before buying will fall into this property tax trap.
If they were to buy a home worth 350,000 GBP as a replacement main residence, the standard stamp duty would be 7,500 GBP. But at the enhanced stamp duty rates, the amount rises to 16,800 GBP for the same property. Normally, the enhanced rates are reserved for property buyers purchasing a buy to let, holiday let or second home.
Another point to watch is that the enhanced rate starts lower than the standard rate. Properties worth 40,000 GBP or more are taxed at a rate of 3 per cent up to 125,000 GBP, while the standard rate is zero per cent for properties worth up to 125,000 GBP.
For landlords with buy to lets or other property other than a main home, a solution could be moving into one of these for a short time as a residence rather than an investment and then buying another home. The value of a main home is not relevant for stamp duty, just that the property was a main residence.
Take Advice on Your Property Tax Concerns
Expats should take tax advice before doing this, or taking any other action, as changing an investment property into a main residence can have adverse tax implications.
Forth Capital Tax Advisers Ltd
At Forth Capital we are in the perfect position to assist expats on this matter thanks to the existence of our London-based UK and International Tax Planning team. Our tax office was created to support our investment advice and clients with fully qualified and authorized in-house tax advice.
So if the stamp duty changes could affect you, or if you have any other concerns regarding your tax situation then please contact us in the first instance and a member of our team will discuss your concerns and requirements with you in the strictest confidence.