Expats without a home in Britain are stung by having to pay higher rates of stamp duty when buying somewhere to live.
Poor wording of rules is also misleading many to believe they may have to pay capital gains tax if they later sell a home for which they have paid extra stamp duty.
Expats who are buying a home but have no main residence in the UK have to pay second-home stamp duty, which adds 3% to the standard tax rate paid by other buyers swapping one home for another.
However, they do not have to pay capital gains tax when they sell, providing they have lived in the property as their main home for the time of ownership.
Second home or enhanced stamp duty and capital gains tax have no direct relationship, so paying one does not mean the other applies.
The new stamp duty rules are confusing for expats.
How the rules apply
Although described as buy to let or second home tax, the reason for buying is irrelevant.
Any property that is not a main home attracts the higher tax rate, while anyone who does not own their home but buys a property to live in is also trapped in the extra stamp duty net as well – unless they are a first time buyer.
The irony is an expat can own buy to let property or a home where a relative lives and still has to pay enhanced stamp duty when they return to the UK and buy somewhere to live.
The only way around the problem is to sell any other property before buying, which will be much more expensive than paying the extra stamp duty.
A main home for stamp duty is also different from a principle private residence for capital gains tax.
Loophole for expats
No one decides where their main home is. Instead factors like where personal possessions are kept, where personal post is delivered, where someone spends their time and where their family lives come into play.
This means a rented property or a home provided by a friend of relative can be a main home.
If one of these or a similar arrangement fits the bill, buying a main home involves no transfer of one owned property with another, so the higher stamp duty rate applies.
These new rules apply to expats buying homes in the UK from April 1, 2016.
However, a loophole allows expats who sold their main home before November 26, 2015 to buy a new one before November 26, 2018 without paying the extra stamp duty.
