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I always know when readers complain that a tax “isn’t fair” that they are having to pay it. Taxes levied on other people always seem fairer than those one has to pay oneself. But a Kent estate agent I know seems to have found a weird anomaly — he calls it a major injustice — in the 3 per cent additional stamp duty land tax (SDLT) now charged on second homes.
Since April, the additional 3 per cent band has normally been charged on any home purchased if the buyer ends up with more than one property — the purchase of a buy-to-let property or holiday home being the two obvious cases. However, the government made an exemption for people who had more than one home but were replacing their main residence. So if a landlord or someone with a holiday home sold the home that they actually lived in, and then bought another property to replace it as their main residence, they would not be subject to the 3 per cent surcharge on the new property.
Furthermore, if they did not immediately sell their old home, they would have to pay the additional tax but they could can claim it back if they sold within 36 months.
David Page, a director of Maidstone estate agent Page & Wells, was replacing his main residence so thought he would not have to pay the surcharge. He owns three properties which he rents out and is now buying a home to live in. So he was very surprised when his lawyer told him that his new home would be subject to the 3 per cent surcharge. That is because he and his wife do not own their current main home. They rent it from another landlord.
As the law is drafted, a landlord who lives in a house rented from someone else who then decides to buy a home to live in is subject to the additional 3 per cent SDLT on that purchase. That applies even though he is in fact replacing his — albeit rented — main residence.
Mr Page says the extra tax will cost him about £13,000, more than doubling the stamp duty due on his new home. And it is this tax bill he thinks is unfair.
“The injustice is the fact that if you own your own house and a number of others and move into your next main residence, it is not liable for the extra tax,” he says. “We are renting and are being penalised for making that choice.”
As a landlord, he says he understands the new tax for buy-to-let homes. “If I was buying another investment property I would accept it. But our rented house has been our main residence for eight years. As long as the new home will now be our main residence, it should be exempt. It is just wrong.”
Eight years ago he and his wife decided to sell their main home and live in a rented one instead. They also bought three properties to rent out. Recently their landlord gave them notice and they decided to buy a house to live in. They are in the process of selling their buy-to-lets but as they still own them, the new property they are buying as their home counts as an “additional residence” and is subject to the surcharge. Even if Mr Page sells the buy-to-lets quickly, he cannot claim back the tax paid.
Any new tax creates awkward decisions about where its boundary lies. The chancellor has already made a major exemption for landlords who are replacing a main residence they own. But it is hard to see the logical difference between them, and landlords like Mr Page who are replacing a rented main home with one they buy. This rule also hits people who turn temporarily to renting after a job move and end up with a rented main home and another they at least partly own. But it is politically unfashionable to give tax breaks to those who own more than one home. And that is why I think any change is unlikely.
He has asked the MP for Maidstone and the Weald, Conservative Helen Grant, to raise the matter with the chancellor. She could not be reached to provide a comment for this column.
However, George Osborne may be less than willing to help. A year ago, he restructured SDLT, changing the bands and the way the tax was calculated. That was expected to cost £840m in lost tax this year, falling to a £785m loss in 2019-20. But the new tax on additional homes neatly fills that hole. The Treasury estimates that the additional SDLT will raise £625m this year, rising to £825m in 2019/20. Any new exemptions for landlords would upset that balance.
A Treasury spokesman confirmed that the rules are intended to catch a “renting landlord” in David Page’s position, adding that “higher rates of stamp duty on additional properties will help double the affordable housing budget and support even more first-time buyers fulfil their ambition of owning their own home”.
The spokesman agreed that Mr Page could have avoided the charge by moving out of his rented home into one of his own buy-to-let properties, living there for some time to designate it as his main residence, then selling it to buy a new main residence.
However, it is too late for David Page to do that. When I spoke to him, he was in “the chaos of removal” as he took possession of his new home — £13,000 poorer than he expected to be.
So if you’re a landlord who happens to live in a rented property, take note. And for landlords north of the border, identical rules apply in Scotland under the Land and Buildings Transaction Tax.
Paul Lewis presents Money Box on BBC Radio 4, on air just after 12 noon on Saturdays, and has been a freelance financial journalist since 1987; Twitter: @paullewismoney