Increased Stamp Duty Rates May Cause Problems for Families

The new higher rates for additional residential properties completing post 31/3/2016 is +3% on the usual new sliding scale of Stamp Duty. So a property purchase of more than £125,000 but less than £250,000 will be charged at 5% now rather than 2% as would have been the case before the Stamp Duty rate change.

Now whilst the measure is intended to raise tax revenue from the buy to let sector, there are other categories of property purchases which will be caught.

Say Mr and Mrs Smith own their own home. They wish to help one of their children onto the property ladder. The property they all intend to purchase is valued at £250,000 and the parents intend to put down a £150,000 deposit from savings, and the rest is to be paid by savings from the child and their life partner. The names of all of the participants are to be on the title to the property so as to provide assurance to the parents that their investment cannot be lost through the subsequent bankruptcy or divorce of their child. The parents’ interest is a secondary property interest for them for the new rules, and as such will attract the additional Stamp Duty rates. This will be the case not just on the value of their investment, but on the entire purchase price including the component financed by the child and their partner.

There are complex recovery provisions so that if the parents’ interest is disposed within 3 years of purchase / their own property is disposed of without being replaced that the additional stamp duty may be recovered, but the additional Stamp Duty does have to be paid in the first case which may make the initial purchase unaffordable.

There is a lower level threshold so that secondary property interests worth less than £40,000 are not caught, which may provide some useful planning opportunities.

Trying to devise appropriate ownership solutions to getting children onto the property ladder has become even more difficult than it was already, and the need for appropriate considered legal advice in advance of exchanging and completing upon any first property for a child with assistance from the ‘Bank of Mum and Dad’ has never been greater.”

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