Everything you need to know about stamp duty
Anna Tyzack has a few cost-saving tips for families who are thinking of buying a new home in the country or upgrading in London
Unfortunately the days of clever stamp duty land tax avoidance schemes are largely over – which means that a £1m family home in London or the country could cost you an eye-watering £43,750 in stamp duty, plus your solicitor’s and surveyor’s fees, and Land Registry and search costs. ‘The chancellor needs money, so he’s closed all the loopholes,’ confirms Phil Harvey, of buying agents Property Vision.
For families looking to upsize in London or decamp to the country, there are still certain steps that can be taken to soften the potentially extortionate costs of a property transaction. ‘A lot of what lawyers do now is ensure people are compliant and are making the best use of any sensible strategies that are available,’ says Henry Stuart, a property lawyer for Withers.
Tax experts don’t recommend signing up for any of the stamp duty avoidance schemes advertised on the internet – they can be more trouble than they’re worth, says Harvey. But there are stamp duty reliefs available. ‘If you’re buying a country house with a couple of fields and some woodland and can prove it is “mixed use”, as in it includes commercial land or rental properties, as well as being a residential dwelling, you can pay a reduced levy of four per cent. Some townhouses with commercial additions can also qualify.’
‘It does not necessarily have to be a big farm – many people have claimed this rate with small acreages,’ says Mark Parkinson of buying agents Middleton Advisors, adding that townhouses with commercial additions, such as a shop or separate flat, can also qualify for the relief.
‘Your lawyer will need to complete a self-assessment form to prove you are eligible for the reduced rate,’ explains Stuart. ‘But if you’re in any doubt you should send a covering letter to the complex transactions unit of the Stamp Taxes Office explaining what you have done and why.’
If you’re lucky enough to stand to inherit a home from parents or in-laws, careful planning can save you paying inheritance tax (which stands at 40 per cent on the value of a property above £350,000). So long as the property is gifted to you seven years before your relation dies, it can become a potential exempt transfer (PET). There is a caveat, of course: your parents can’t gift you their home but continue to live in it – unless they pay you market rent. ‘At Withers we are seeing an increasing number of clients doing this,’ Stuart says.
When it comes to the property transaction itself, there are a variety of ways to cut costs. If you are buying a commoditised terraced house, Phil Harvey suggests instructing a rural solicitor or conveyancer who is likely to be considerably cheaper than one of London’s big players. ‘Always negotiate on fees with your solicitor,’ he advises.
You could also decide to do without a solicitor altogether and complete the paperwork yourself, although Stuart warns against this. ‘At least by using a lawyer or a licensed conveyancer if anything goes wrong you have a professional who is insured and owes you a duty as a client,’ he says.
He also advises against forgoing a survey, despite the fact they are not a legal requirement. ‘A house purchase is probably one of the larger financial transactions you make during your lifetime,’ he says. ‘In the greater scheme of things knowing that your house is going to stand up and you’re not going to have to spend £30,000 on a new roof next year is a precaution worth taking.’ In fact a survey can actually save you money, he adds. ‘If it reveals substantial maintenance will be required in the future, you are in a position to negotiate the price you are paying.’
Where do you stand if the sale falls to pieces after you’ve paid for the survey and are liable for the first tranche of legal fees? According to Stuart there is nothing you can do to recoup the costs – unless you were organised enough to draw up a contract with the vendor when they accepted your offer. It’s rare that lawyers are asked to put together such contracts, he explains, but if there’s a lot of competition for the property you are buying, they can be a useful precaution.
A cheaper and more effective way of securing your next family home, however, is simply to get on and buy it. If there’s a lot of competition, Parkinson suggests instructing a lawyer before your offer is accepted, as you will be charged more if solicitors are asked to do things in a rush, while Stuart recommends your lawyer makes any offers on your behalf to prove your commitment to the purchase.
Delay, Stuart continues, is one of the main reasons why property sales fall through. ‘Transactions fall out of bed when they’re taking too long,’ he says. This doesn’t need to be the case, though: he’s helped clients exchange contracts for a property in an afternoon.
Most family houses are owned jointly by the parents but in certain situations, according to Stuart, it is better for it to be owned by either party. ‘If you could ever be sued for professional negligence it’s worth considering the property being in your spouse’s name,’ he says. ‘That way if someone claims against youit doesn’t form part of your assets.’ Obviously this could be tricky if you get divorced but Stuart insists that the family courts have wide-ranging powers to redistribute assets in such situations.
If you’re looking to move in 2016 there’s no getting away from the fact that it will be an expensive ordeal (apart from the removal men, according to Harvey, which are usually good value for the service you get). Nothing is more cost effective, however, than buying the right house in the first place, concludes Parkinson.
This way you won’t have to move for many years, saving yourself on stamp duty and all those other additional costs, he says. ‘It makes sense to buy the best you possibly can for your budget,’ agrees Harvey. ‘Ideally something that you can add value to over time and will be easy to sell on again in the future.'