UK - Do I pay higher Stamp Duty for transfer of equity on main home if I have Buy To Let property?

Question

It is my understanding that if you own a BTL property and a residential property, and then move house, you pay the standard stamp duty (without the 3% surcharge for second homes) even if it is a bigger house.

I am hoping the rules are similar for transfer of equity. For example, I have a BTL property which I own myself. I also have a residential home which I live in and which I own 50-50 with my brother (we are tenants in common). I would like to buy his share, but will I have to pay the 3% surcharge?

Answer 1

Note that a residential property is any place someone can live, as opposed to commercial property like an office, factory or shop. Even if you are letting it out to someone else to live there, it still counts as residential. The formal term in the legislation is a dwelling, and there's some further examples of how this is defined here. As both your scenarios involve you owning two properties at the end of the day of the transaction, you have to look at the exceptions quite carefully.

You're right that even if you already own a BTL property, if you sell your main home and later (or the same day) buy a new main home, you can avoid the 3% surcharge. The exception is listed here:

People

Do not include anyone who will both:

• use your new property as their main home
• have sold or given away the last main home they owned before you buy your new home (or on the same day)

In the case of transferring equity, it looks like the other exception you found applies:

Transactions

If you want to increase the amount of a property that you already own, you do not have to pay the higher rates when all the following apply:

• you already own 25% or more
• the dwelling has been your only or main home for the previous 3 years

Answer 2

In both the first and second scenarios, you would have to pay the stamp duty. Depending on the value of the properties, the stamp surcharge can be even more than 3%. According to UK tax law guidance, you must pay the stamp tax when you buy a residential property, or a part of one for £40,000 or more, if all the following apply:

• it will not be the only residential property worth £40,000 or more that you own, or partly own
• you have not sold or given away your previous main home
• no one has a remaining lease on it of 21 years or more

If you own all or part of the buy-to-lease property AND your share of it is worth £40,000 or more, you will have to pay the stamp tax on the purchase of the rest of the house that you and your brother own (if it is worth £40,000 or more).

If any of the following are true about the property that you and your brother own, then you are exempt from the stamp duty:

• it is worth less than £40,000 in total
• is a flat with a shop or other such business above it
• is moveable like a houseboat, caravan, or mobile home

There are some special rules for two people who are not married, where one wishes to transfer his or her partial ownership of a property to the other partial owner. See here, If you transfer or divide up jointly-owned property or land: unmarried couples and other joint owners. This includes your situation with your brother. The guidance indicates that the stamp duty will still be owed depending on the amount of the transaction.

*Higher stamp duty: If the purchase price of the 50% of the house that you are buying from your brother is less than £125,000 then the stamp duty is 3%. If it is between £125,000 and up to £250,000 then it increases to 5% etcetera.