Business Clinic: Must I pay extra stamp duty on house for daughter?

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Keith Phillips of accountant Duncan & Toplis advises on how the introduction of higher stamp duty land tax rates will affect a farming family’s plans to buy a second house.

Q I would like to buy a new house for my daughter, who suffers from a disability. The purchase price is about £700,000 as it has about 8ha of land with it. Will I have to pay the new second home stamp duty land tax [SDLT] in these circumstances?

Keith-PhillipsKeith Phillips
Accountant, Duncan & Toplis

A The second home rules for stamp duty land tax, introduced on 1 April 2016, have considerably increased the SDLT charge on the purchase of a second home.

The definition of a second home is quite wide in that it includes any house that is not your main residence. So buy-to-let properties, holiday homes and homes for family members are all caught by the new rules.

See also: Readers’ Business Clinic queries 

Properties bought for employees are not covered by these new rules, but strict criteria must be met to be covered by this exemption.

The purchase of a second home attracts an additional stamp duty charge at the rate of 3% above the normal band rates.

SDLT rates

Property costs  Normal SDLT rate Second home SDLT rate
£0 –  £125,000 0% 3%
£125,000 – £250,000  2% 5%
£250,000 – £925,000 5% 8%
£925,000 – £1,500,000 10% 13%
 £1,500,000+  12% 15%

This means that on the purchase price of £700,000 for the property in the query, the stamp duty charge would be £46,000 (£125,000 at 3%, plus £125,000 at 5%, plus £450,000 at 8%).

This is a substantial rise on the figure for the same transaction before April 2016, when the SDLT would have been only £25,000.

There is a very useful online stamp duty calculator that can be used to give you a guide on any specific land or property purchase.

There are a few things to consider to mitigate the tax burden.

1. Are you happy to perhaps lend your daughter the money secured on the property? This would mean that the purchase would be by your daughter. Assuming the house is to be her private residence (and she has no other property), she should not be subject to the additional SDLT.

2. If the above is possible, can the transaction be split into two deals, one for you buying the land and one for your daughter buying the house? Again, this may drop out the higher rate charge.

3. Is your daughter a bona fide employee for whom the provision of a house as part of her remuneration package would be fair and reasonable? (For any family member the compliance with the strict rules in this area is perhaps a hard test to pass.)

4. If the deal can be shown to be a mixed purchase by you of productive land and a house then it is possible to argue that the lower rates of SDLT that apply to commercial property should apply to the whole transaction. Careful review of this is important to obtain the relief, but this exemption does support a more detailed investigation to avoid the initial tax charge.

As can be seen from this example, a transactional SDLT can be substantial in certain circumstances, so it is worth carefully investigating options to mitigate this cost.

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