A top consultancy firm is warning that the stamp duty surcharge coming into effect at the end of this week may lead to unexpected costs for unlucky buyers undertaking bridging loans and inadvertently finding themselves owning two homes.
Sean Randall, head of stamp taxes at KPMG, says broken chains are frustrating and stressful in any transaction but will be more so this week.
“If a buyer is funding the purchase of a new home with the sale of their existing home and their buyer pulls out but they still want to go ahead – perhaps by using a bridging loan – they will now be liable for the stamp duty surcharge because they will technically own two residential properties at completion” he reminds agents and the wider public.
He says this would potentially punish those further down the chain who, through no fault of their own, are temporarily reluctant owners of two homes because of a problem at the top of the chain.
“Although the cost of the stamp duty surcharge may be partially met by the buyer keeping the deposit paid under a failed sale contract, there will often be a significant shortfall for them to fund if they still want to go through with the purchase of their new home. The extra tax will be repaid, but only if the old home is sold within 36 months” he cautions.
He warns that some married couples or people in civil partnerships may also be inadvertent victims of the new law and have to pay heavily as a result.
“The issue comes in when one spouse already owns a property. Under the new rules, married couples and civil partners are treated as one buyer. In essence, ownership of an existing home by one partner will infect the purchase of the couple’s first home together” he warns.
While one partner could of course sell their old home to avoid paying the extra stamp duty on the couple’s new property, this might not be straightforward - if, for example, the individual suffers a high mortgage redemption penalty by selling.
Randall also claims that while the stamp duty changes are described by Chancellor George Osborne as being designed to dissuade people buying buy to lets and second homes so as to help first time buyers, a side effect will be to make parental help for young buyers more problematic.
“In cases where a mortgage lender insists on the buyer’s parents owning a nominal share of the property, as is typical, the parents’ ownership of their family home will infect their child’s purchase, making it subject to increased stamp duty” he says.