Stamp Duty on 3rd Property - Clawback

C

carrig06

Registered User
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Hi All,

I bought my 1st property 5 yrs ago as my PPR (2002), then 2 yrs later I purchased a new property as my PPR and the 1st property reverted to an Investment property.

I did not have a Stamp Duty Clawback on Property 1 as the Price was under the Stampduty theshold at the time - 90k.

Now I have bought a 3rd property with my boyfriend which we intend to move into it as our PPR & again I will rent out Property No. 2.

However, my question is when I rent out Property No. 2 do I have a Stamp Duty Clawback - the % I would have paid at the time had I been an investor.

My solicitor tells me NO as I was not a 1st time buyer & clawback is only on FTB but I am not so sure:confused:

All advise welcome!!!
 
carrig06 said:
My solicitor tells me NO as I was not a 1st time buyer & clawback is only on FTB but I am not so sure:confused:
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If you weren't a FTB you probably* paid full SD on the property (if due) when you bought it. The "investor" rate of SD is the same as the non-FTB rate or "Full rate". If you did pay the full rate on purchase, you've already paid the SD liability for the property.

[broken link removed]
The page above lists the two different rates. FTB rate and "Full rate".

*The only difference (which is obvious from a quick run through the Revenue docs, I'm sure a Tax Expert could pick out more) for a non-FTB (you when you bought) and an investor (you now) when it comes to SD is..
"Investors - New houses or apartments (whether under or over a floor area of 125 sq. m) which are purchased by investors are charged to duty on the entire price paid (exclusive of VAT) for the house or apartment."
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So if the home was new and under 125sqm (so exempt when you bought) you would have a SD liability as the exemption re <125sqm is no longer available.
 
I reckon you are liable to stamp duty clawback. You bought 2nd property in (I think) 2004, at which pint there was no Stamp duty for owner occupiers but stamp duty for investors if property over certain value. As you have not lived there for 5 years as your PPR you are liable for the stamp duty that would have been due on the purchase of the 2nd property if you had bought it as an investment property at the outset. Note-stamp duty only falls due if the house is actually rented out.
Depending on what you would have to pay it might be worth considering selling it.
 
If you are saying as i picked up that the second property was new build then you would probably have been exempt from stamp duty anyway if the floor size feel within the exclusions.
 
Luternau said:
You bought 2nd property in (I think) 2004, at which pint there was no Stamp duty for owner occupiers but stamp duty for investors if property over certain value.
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According to the Revenue page above (and I'm not saying it's correct), from 2002 onwards there were two rates of SD payable, FTB and "Full Rate", of which the OP would have paid the full rate as a non FTB.

Prior to the 6th Dec 2002 there were four rates, FTB/OO/Investor/Investor(2), but for the OP the "Investor Rate", technically, does not exist (the full rate is the rate paid by an investor).
 
Thrifty said:
If you are saying as i picked up that the second property was new build then you would probably have been exempt from stamp duty anyway if the floor size feel within the exclusions.
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No exclusions on floor area for investors. See previous post.
 
Re: Stamp Duty on 3rd Property - Clawback ?

Thanks All,

Property No 1 cost 90k - No stamp duty (2002) - under the Stamp duty theshold & no clawback.


Property No 2 - Exempted from Stamp Duty as it was my PPR (2004) & a new build.


Property No 3 - Will be exempt as it will be my PPR (2006) & new build.

So do u think that I have a stamp duty clawback on Property No 2 should I rent it out after I move to No. 3? How about if I rent it for less than a yr & then sell to keep my CGT exemption? Or does the clawback arise as soon as I rent it out....How do people who can't sell within the 12 mths cope with paying 2 Morgages?

My Solicitor says NO but my gut says YES from reading previous threads.

Thanks ALL
 
Re: Stamp Duty on 3rd Property - Clawback ?

carrig06 said:
So do u think that I have a stamp duty clawback on Property No 2 should I rent it out after I move to No. 3? How about if I rent it for less than a yr & then sell to keep my CGT exemption? Or does the clawback arise as soon as I rent it out....How do people who can't sell within the 12 mths cope with paying 2 Morgages?
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You say you were exempt as it was your PPR and it was a new build. This means you used the <125sqm exemption as it was your PPR. It now fails to be your PPR, you pay the SD (- any SD already paid [which is none]) on the higher (investor) rate at the time you bought. If you had have been an investor when you bought property 2 there would have been no exemption, so YOU DO have a SD clawback to pay.

If you rent for one year and sell, you keep your CGT exemption, but the SD is payable on the day you rent (other than under the RaRS) if ownership is for less than five years.

Not sure I fully understand the last question.
If they rent for twelve months they are already paying two mortgages so not selling within the year doesn't change this.
If they have a SD clawback the selling within twelve months again isn't a factor, it's due from the day they rent.

If you mean how do they afford the CGT and the mortgage costs, the CGT is paid on the portion of time it's not a PPR, minus the final twelve months exemption, over the total period of ownership. So, if they own it for two years, rent it for nine months, try and sell it within the three months but don't manage to sell it for nine months....
Total non PPR time: 18 months
Exemption available to use: 12 months (it wasn't a PPR for the full final 12 months so full exemption can be used - if they had moved back into the house for the final 3 months only 9 months could have been used, most people don't take that into account and just use 1 year / 12 months exemption)
Total period of ownership: 42 months (2*12 [PPR] + 9 [rented] + 9 [selling])

= 18 - 12 / 42

....they pay CGT on 6/42 or 2/21 of the the total CGT bill.... so not really a huge amount.

If one of those doesn't answer what you actually queried please do repost again, I'm really not sure what that final point was questioning.
 
Yes you will have to pay stamp duty on the 2nd property. You were exempt from property because it was your principal residence. You did not have to pay for stamp duty because you were an owner occupier of a new property under 125sq meters. However in order to be an owner occupier and avail of the stamp duty exemption you must not rent the property for a period of five years.

If you rent the property within five years then you cannot avail of exemption and there will be a claw back of full amount minus VAT on building Agreement.
 
You do not seem to have considered the option of selling it?
Assuming a new price in 2004 of jsut under 200k(less VAT) you would have to fork out in excess of 5k just for the privlidge of being able to rent it out.

In effect that will mean that you make no profit from its rental for a few years-assuming you have to pay mortgage and other expenses. You are not gauaranteed significant capital appreciation from here on. If you continue to rent it any future gain after 12mths will incurr CGT.
The profit from a sale put on deposit with ACC, Northern Rock etc-100k deposited will net you 3% minimum per annum, no risk. You could also diversify into Shares or other hight risk investments so that youdont have all the eggs in a basket that to say the least is looking a bit overloaded and creaky!!
Choose wisely!
 
Luternau said:
You do not seem to have considered the option of selling it?
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To be fair to the OP, it's tough to weigh up options when you've been given incorrect* advice, which thankfully they spotted, from a solicitor. Now that they know the SD liability (or at least the fact that there is one) they can weigh up the different options fairly.

*Do be sure to check with the solicitor under what grounds they felt that the clawback would not be due. They may have more detail on the scenario and know something which we, and you, don't. Get the precise detail and if it's simply "as you weren't a FTB", as it seems to have been, you know them to be incorrect (they [appear to have] missed the caveat on investors and the <125sqm rule). On the otherhand, it is possible that they didn't go into detail with you (most clients wouldn't care to understand the in's and out's and simply want the bottom line [a dangerous and foolish route to go]) and just provided the end result.

Do weigh up all you're options as suggested above. Lots of threads on AAM on all the relevant issues (other routes of investment, selling vs. renting etc.) and links to additional sources of information from most of those threads.
 
Thanks for all the Replys - I had thought from reading up on the Site that I was liable & even pointed out the Scenario to my Solicitor but he replied that NO of course I wasn't liable as the clawback only applies to FTB renting out within the 5 yrs. That didn't make sense to me.. hence my querying it on this site....

I would want to pay the Stamp Duty if I were to keep the house longterm & again I need to make the right decisions re my investments as I am one of the lucky ones that has seen my properties almost appreciate by 90%. Property No 3 will not appreciate as much and I don't think properties prices can sustain the growth going forward.

Now I need to do a few calcs to see if the Property is worth the 5k Stamp Duty &/or losing the CGT exemption if I hold onto it for more than 1 year.

Cost of CGT at a Selling Price of 350k would be 32k + Stamp of 5k - I doubt that my small house can sustain a further growth of 37k unless the Purchaser is mad!! Now time to weight up my option!!

BTW - what would happen if a client took their solicitors advise and did not pay the Stamp Duty? Surely this is what most people rely on. Unfortunately my solicitor is a family friend.....
 
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