Frequently Asked Questions
Examples of second home stamp duty
Example 1 - Married with 2 separate properties
Andrew and Jayne, a married couple, each own a residential property, with neither having any interest in the other’s property. They both live in the property owned by Jayne: the property owned by Andrew is rented out. Jayne is selling her property and they are jointly purchasing a new one, which will be their new main residence. Andrew will retain his rented out property.
The higher rates will not apply to the joint purchase by Andrew and Jayne of a new main residence. As they are married and have both lived in the property owned by Jayne as their main residence they will both be treated as replacing their main residence.
Example 2 - Unmarried with 2 separate properties
Alyson and James, who are not married to one another, each own a residential property, with neither having any interest in the other’s property. They both live in the property owned by Alyson: the property owned by James is rented out. Alyson is selling her property and they are jointly purchasing a new one, which will be their new main residence. James will retain his rented out property.
The higher rates will apply to the joint purchase of a new main residence by Alyson and James. As they are not married (or in a civil partnership) James will not be treated as replacing his main residence as, even though he has been living in the property owned by Alyson, he has no interest in the property Alyson is selling.
What interest rate can the loan have?
Knowing you can get your money back through the repayment of the loan from the person who owns the property, normally a family member, you need to decide if you want to get repaid any interest on top. This is what you need to consider:
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1
Inflation related - this is inline with inflation and no profit is made.
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2
Higher than inflation - this means you are looking to make a profit from the transaction and the loan agreement will fall under the Consumer Credit Act 1974. This type of loan agreement costs more and the borrower will need to seek independent advice on the terms of the loan before agreeing to it.
Is the loan registered over the property?
Having the loan secured over the property as a second charge gives the lender security that when the property sells, their loan will be settled after the first charge with the mortgage lender has been settled. The loan can be unsecured, however there is a risk then that the property could be sold without the loan being settled. The lender can still enforce the terms of the loan, however this is why it is so important there is a robust legally binding Loan Agreement drafted.
Will the mortgage lender allow the loan?
Every mortgage lender is different and their decision as to whether they agree to a loan will be handled on a case by case basis. Most mortgage lenders will agree to a loan as long as they have a first charge over the property.
There is nothing wrong with tax structuring
You must pay tax if it is due, however if there is no tax to pay because of the way you have structured the transaction then this is ok. You should always speak to a tax adviser to help show you (if you can) or How to avoid stamp duty on second home. If you need to speak to a tax adviser then get in contact.