A new stamp duty surcharge introduced earlier this month has affected a range of people from “accidental landlords” to parents helping their children buy a home.
Following a Telegraph Money investigation earlier this month, the Government dropped a stamp duty surcharge on granny annexes.
But the law, which is meant to discourage second-home buyers and buy-to-let investors, is still affecting people in unexpected ways – and prevailing confusion surrounding who is and isn’t affected means they may not know about loopholes that could save them thousands of pounds.
For example, families who live in employer-provided accommodation – such as that provided for clergymen and soldiers – often keep a property for when they leave their job. It seems a sensible approach.
But some are now finding that they are being charged thousands extra in tax for the home that will become their main residence once they retire – because they own another property.
This is what Shropshire couple, and accidental landlords, Stuart and Liz Jermy, aged 49 and 48, have discovered. The couple live in a vicarage in Oswestry, Shropshire, provided by the diocese, with their two children.
They have a property which they let out and a holiday let which Mr Jermy, a vicar, inherited from his father. Now they are trying to part-exchange one of these for a new property, which will be more suitable for them to live in once they retire – but are dismayed to have been hit with an extra tax bill of £8,500.
They first bought property over 20 years ago, when both lived in London. They have bought and sold several times since then because of family finances but have made sure they always own a property, just in case circumstances change.
Then two years ago, they inherited the holiday let – meaning they are technically second-home owners. But unlike buy-to-let landlords, they have no main residence relief, meaning that even if they sell a property they can’t buy the home they eventually want to live in without incurring the extra tax.
Mrs Jermy, a foster carer, said: “If Stuart dies I need a property to live in with the children or that I can sell. You don’t want to find yourself homeless.
“It makes a mockery of it. Someone who’s got loads of properties can sell and buy their own home but we can’t.
“It’s the responsible thing to do – to keep a home as security. Or people like us find that they are coming into retirement and realising they’ve got nowhere to live.”
Unfortunately, the fact that they changed the original property means they can’t take advantage of a three-year loophole hidden in the legislation.
A transitional period rule means that anyone who now lives in employer-provided accommodation but used to live in a property at any point, can sell that property and buy a new one without paying the extra stamp duty, until November 2018. After this date, they need to have lived in the property in the past three years in order to be exempt.
There is a similar loophole for buy-to-let investors who don’t own their own home, as they have three years from November 2015 to buy a new property if they sold their previous main residence before that date, when the new higher stamp duty was announced.
Among the largest group living in employer-provided accommodation are soldiers who live in barracks or family accommodation. Teachers and caretakers who live on-site in boarding schools will also be affected.
The issue also throws up questions about how you determine a main residence for tax purposes, as these groups are effectively being allowed to use somewhere they don’t live as a main residence.
Experts say the confusion stems from the stamp duty law. Unlike with capital gains tax, you are not allowed to nominate a main residence for stamp duty purposes – instead it is decided based on the facts.
A first-time buyer in the Jermys’ situation would have no way of avoiding the extra tax, however – raising questions about the purpose of the law, which is meant to encourage first-time buyers.
Nimesh Shah, a partner at accountancy firm Blick Rothenberg, said: “There is an ability for you to replace your main residence and you are not affected by the 3pc charge. However, in this situation they can’t take advantage of this.
“There was a very short period of consultation before it actually took effect and unfortunately it is having a series of unintended consequences.
“I think we’ll see more of these types of scenarios where people are innocently caught by this additional charge.”
Simon Collins, product technical manager at mortgage broker John Charcol, said this was a common situation among first-time buyers who had inherited property. “One of our cases involves a customer in rented accommodation – he inherited a property and now he wants to buy he’s faced with being hit with this 3pc. The guy’s only crime is a relative died and left him a property.
“It doesn’t make sense. Are these the people you were trying to get after because they are foreign investors – we seem to be getting all sorts of other people being hit in the crossfire. Why should a first-time buyer be clobbered by that 3pc?”
Mr Collins said. Jeremy Leaf, a north London estate agent, said: “ I think what the Jermys would have to do is weigh up the value of keeping that additional property. If it’s not producing the return they’re going to have to look at is as a business situation, and realise that the playing field is being adjusted against them and decide whether they can do better by selling it.”
A spokesman for the Treasury said: “It is right that people should be free to purchase an additional property, such as a buy to let property or a second home. However, we know that this can impact on other people’s ability to get on to the property ladder.
"That’s why we introduced a higher rate of stamp duty for those who purchase additional property. Our change will make it fairer for people trying to get on their foot on the property ladder for the first time.”
- Are you worried about stamp duty? Let us know: olivia.rudgard@telegraph.co.uk