Confusion caused by new stamp duty rules vs capital gains

The new rules introduced on 1st April require buyers of multiple properties to pay a three percentage point increase on their level of stamp duty. Confusion surrounding the new rules may largely be a result of the law commonly referring to the duty in relation to “second homes” or buy-to-let properties.

This misconception means other types of property—be it holiday, second or a buy-to-let—are often neglected when stamp duty is considered. The actual purpose does not matter; as long as the property that is owned or partly owned is additional, liability for the increased rate will apply.

A peculiarity exists within the rules, which means that anyone who has ever owned a main residence they lived in which was sold at any point in previous to the announcement in November 2015, is exempt from the surcharge. Even if another property is owned, the exemption continues to apply. If the previous home was not owned, however, the surcharge is still due when purchasing a new home.

Where stamp duty is concerned, the Government dictates a main residence, which differs to the “principal private residence” set out under the capital gains tax rules. The decision is based upon indicators, such as where children are sent to school, the proportion of time spent there, as well as where post is delivered to.

Those replacing their main residence are exempt, and this replacement must include a sale of the property itself or a share of one.

Moving from a house owned by another or leaving a rented property does not count, other than in specific situations which are very limited in nature. This can include moving from a home owned by one half of a married couple. As under the law, spouses can only have one main residence, this is viewed as disposal of a property for both parties according to tax experts. Thus, one half of the couple may be exempt from the surcharge despite maintaining ownership of a second most recent home.

Capital gains tax differs, as it is paid on a rise in property value over the duration of its ownership. It only applies to an individual’s main residence as opposed to additional private properties. It also differs to stamp duty due to its element of choice; if multiple homes are owned, there is flexibility in nominating which is to be treated as the main residence. This can include property which somebody is not actually living in. For a maximum three years, an individual could live elsewhere and continue to claim relief as long as it is the only house owned eligible for nomination. It must be lived in both before and after the absence.

If work commitments mean that somebody or their spouse has to live elsewhere in the country, the period can be extended for another year.

Living in job-related accommodation may also mean private residence relief can be granted on another owned property if intending to use this as a main home, despite not actually living there. No such allowances exist in relation to stamp duty, and thus consideration for reasons behind purchase or sale of a property are not given.

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