Chancellor George Osborne’s continual tinkering with stamp duty rules for expensive homes has discouraged many wealthy expats and foreign buyers from purchasing property in Britain.
What many prospective buyers do not realise is meddling with Stamp Duty Land Tax rules has left some gaps that purchasers can exploit to save money.
Typically, the amounts to pay are:
- 5% of the purchase price for a home valued between £1 million and £2 million for an individual buyer
- 7% for a home worth more than £2 million for an individual buyer
- 15% for a home worth more than £2 million for a company
However, these rates can be reduced if the buyer looks more closely at the nature of the transaction, as some exceptions apply to the rules.
Mixed used transactions
Mixed use properties give some opportunity for stamp duty savings.
Although the value of the property might suggest a stamp duty rate of 5% or more, the rules say the maximum rate for a non-residential or missed use property is 4% of the purchase price.
A mixed use property could be considered as a home with stables and fields for keeping and grazing horses or ponies and other outbuildings converted for offices.
The principle here is the stamp duty rate is not only set by the value of the property, but the nature of the use of the property as well.
If this is not considered, it’s easy for a buyer to pay over the odds for a property that should attract a reduced rate of stamp duty.
Multiple purchase relief
The difference between the rates is significant on a £2.5 million property. At 4%, stamp duty is £100,000, but at 7%, it’s £175,000 – a saving of £75,000.
Another way to look at the purchase is if more than one home is included in the transaction and whether multiple purchase relief applies.
A farm house or country property might well include cottages for workers or a gatekeeper’s lodge.
Separating the properties and averaging the cost may well save stamp duty. If the estate costs £2.5 million, at 7% stamp duty is £175,000. Averaging gives each property a value of £1.25 million, which shifts both in to the 5% bracket and gives a total stamp duty bill of £125,000.
These examples show that just taking the stamp duty bill at face value based on the property price tag can cost the buyer a lot of unnecessary cost.
