EXCLUSIVE

A BRITISH resident has been stung for £9,200 due to new UK laws on stamp duty – after he declared he had a second property in Turkey.

The man, who wished to remain anonymous, said he fell foul of the new April 1 tax change in which the Government increased by three per cent the stamp duty land tax (SDLT) that expats must pay when they buy a second UK residential property.

He told Voices that he wanted to send a general warning to other second home owners and expats of the SDLT changes.

He said he had bought a property in Turkey in 2012 for £45,000.

When he came to buy a new UK property, and which is now currently going through conveyancing, his solicitors asked him if he had properties elsewhere.

His solicitor informed that because of a new law coming into effect, he would now have to pay the higher rate of stamp duty, costing him a further £9,000.

Under section 2.12 of the SDLT, it states: “SDLT only applies to purchases of land and property in England, Wales and Northern Ireland.

“A purchase of residential property located outside these areas will not pay SDLT, instead it may be liable for any property transactions tax in that jurisdiction.

“Property owned globally will be relevant in determining whether a property purchased in England, Wales or Northern Ireland is an additional property. This means if someone is purchasing their first or only property in England, Wales or Northern Ireland, they may pay the higher rates if they own property outside these areas.”

The man told Voices that if a person fails to declare properly, then the UK taxman can invoke a final clause on claiming 100 percent of the tax back, plus interest, plus up to 100 percent in fines.

He added: “Therefore, because I declared my property in Turkey to my UK solicitors as part of the purchase process, I was hit by this rule. Costing me over £9,000.”

The tax advice adds: “Her Majesty’s Revenue and Customs will use other information available to it to identify returns that may be incorrect and undertake compliance to determine whether there are under or overstatements of tax liability.  HMRC has nine months following submission of an  SDLT return to open an enquiry.

“HMRC can ask for information in support of an individual’s claim that a property was or was intended to be their only or main residence.”

Here is part of a Daily Telegraph article outlining the SDLT changes:

Stamp Duty Land Tax (SDLT)

The Government will increase the stamp duty land tax (SDLT) that expats must pay when they buy a second UK residential property by three per cent from April 1 2016.

It is not only investors in high value UK residential property that are affected by this rate increase: any property purchased for more than £50,000 will be subject to the extra 3 per cent.

What should you do if you are affected by the SDLT surcharge?

The extra charge will not apply as long as the UK property the expat is buying is their only UK property. So if they were to sell their existing property and then buy a new investment property there would be no 3 per cent charge as long as they did not own any other UK property on the day of the new purchase.

But if they retain one or more UK properties at the time of the new purchase they will be subject to the extra 3 per cent rate. Married couples are allowed to have just one property between them so any purchase of a UK property will attract the 3 per cent charge if it results in the married couple owning two or more UK properties.

One option is to invest in UK property via other family members. If the non-resident investor is also non-UK domiciled they are free to make cash gifts to any of their children or grandchildren without any UK tax issue arising from the gift.

The recipient of the gift would then be free to buy a UK property without the 3 per cent rate applying as long as it was their only UK property.

If the expat is still UK domiciled then making cash gifts to children or grandchildren will not cause any UK inheritance tax (IHT) problem providing they survive for seven years from the date of making the gift.

For those expats that are non-UK domiciled, the better option is likely to be to set up a trust for their child / grandchild and for the trust to buy the property.

HMRC has confirmed that if the trust is set up for the main benefit of one beneficiary then the 3 per cent rate will not apply as long as the property is the beneficiary’s only UK property. Unlike direct ownership, the trust can be structured so that it is not subject to UK IHT on the beneficiary’s death.