on Monday, 29 April 2019.
We examine a typical scenario, where a couple wish to purchase a house together and are prepared to buy, as either sole or joint purchasers, if that will be beneficial from a tax perspective.
What should you do if you find yourself in that situation?
You may be able to claim relief from SDLT and save up to £5,000 if each purchaser is a first-time buyer.
The relief is for first-time buyers who are purchasing residential property in England or Northern Ireland* for £500,000 or less, as long as it is their only, or main, residence.
For example, if you purchase a property for £300,000, you will pay no SDLT. On the purchase of a property for £500,000, the SDLT would be £10,000 (usually £15,000).
There is also Multiple Dwellings Relief to consider. If the property contains more than one 'dwelling' (for example, an outbuilding that has been converted into separate living accommodation), you may be able to claim this form of relief and reduce the amount of SDLT you pay.
Generally speaking, First Time Buyers' Relief will not be available if any of the purchasers own or have previously owned a property at any point.
If any of the purchasers own another property that they are not selling, it is likely that the purchase will be subject to the 'higher rates' of SDLT.
We are often asked if it makes any difference if only one person is added to the property's title. For these purpose, married couples and civil partners are deemed to be 'one'. So if one person owns a property, the other person is deemed to also own that property.
If you are not married or in a civil partnership, there are ways that you can structure the purchase to avoid paying the higher rates of SDLT or to benefit from First Time Buyers' Relief. However, options are often ruled out when mortgage lending is involved.
Generally, if you sell your main or only home you don’t have to pay any Capital Gains Tax (CGT) as Private Residence Relief (PRR) provides 100% relief against any capital gain.
Therefore if you sell your main residence before the new purchase this will allow you to benefit from 100% PRR.
If you retain a property and purchase a new property that becomes your main residence, then PRR may be restricted on a future sale of the retained property, which could give rise to a CGT liability.
The good news is that inheritance tax is not charged between spouses or civil partners, as long as they are both UK domiciled for tax purposes.
If you sell your home and effectively gift your share of the house to your spouse or civil partner for them to purchase the new home in their sole name, you should be aware that you are taking a risk.
Indeed, in the UK, married couples and civil partners do not have any automatic right to each other's assets. So, if your spouse or civil partner were to die without making a Will, or left a Will that did not benefit you, you could potentially lose all or part of your money.
Similarly, if your spouse or civil partner were to be declared bankrupt, they could lose their home, and if you were to divorce there is no guarantee that you would get your money back in any settlement.
*Different rules apply in Scotland and Wales.