Stamp duty warning for farm business partners

Farmers with a share in a farming business are being warned that they are likely to be caught by an extra stamp duty charge if they purchase a residential property.

Andrew Holden, head of rural at Cumbria-based law firm Napthens solicitors, is warning farmers of a potential extra cost if they purchase a residential property while still retaining part ownership of a farm.

The issue has arisen following the introduction of a stamp duty surcharge for buyers of second homes, which took effect from 1 April 2016.

See also: 6 property mistakes farmers make and how to avoid them

Mr Holden said the rules would affect someone who already has part ownership of a farm, perhaps with their parents or other family members.

This ownership will usually include a farmhouse, but the farmer may not necessarily live in the property.

However, if the farmer comes to buy another home to live in themselves, their interest in the farmhouse means they will potentially be liable for a 3% Stamp Duty Land Tax (SDLT) surcharge.

This means, for example, the stamp duty due on a property worth £125,001-£250,000 will be 5%, rather than the standard 2%.

Fairly common

“These are fairly common circumstances, and we have seen a marked number of enquiries about the issue in recent months,” said Mr Holden.

“There is not much that can be done except for the farmer to divest his interest in the farmhouse prior to buying the second residential property.

“Clearly if someone is a part-owner of a family farm with their parents or siblings this won’t be possible.

“This situation demonstrates how important it is to be aware of the legal issues facing rural operators and be clear about the various liabilities which might be faced.

“SDLT liability is a significant sum on the purchase of a property, but one that can be planned for if it is known about well in advance.”

The stamp duty surcharge applies to the purchase of all second homes in England, Northern Ireland and Wales.

The same rates of surcharge also apply in Scotland, but there it is now called the Land and Buildings Transaction Tax (LBTT).

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