If you are an expat looking to buy a first property in Britain the bad news is new rules dictate you'll be eligible to pay a higher rate of tax when your purchase goes through if you already own a residential property anywhere in the world. In simple terms you will need to pay 3% more stamp duty when you buy a property to live in within the UK than a standard buyer looking to upgrade or exchange one home for another.
However, there is potentially some good news.
Although the rules are poorly worded, you won't need to pay capital gains tax if you later sell any home for which you've paid extra stamp duty as long as that property has been your main home throughout the time you owned it. Contrary to popular misconceptions 'second home' or 'enhanced stamp duty' currently has no connection to capital gains tax which means paying one does not leave you liable for the other.
Let's see if we can clarify some of these confusing new rules for you.
Although the rules are commonly described as a 'buy to let tax' or a 'second home tax', the reason you're buying your property is actually irrelevant. The fact of the matter is:
- Any expat who owns either a buy to let property or a property in which a relative lives will have to pay the higher rate of stamp duty and will still have to pay stamp duty should they return to the UK and buy somewhere to live
- If you are an expat looking to return to the UK to live, the only way you can avoid the higher rate of stamp duty would be to sell your rental property/second home and that, of course, would be a highly uneconomical course of action!
It is also important to remember that, when it comes to stamp duty, your 'main home' is a completely different entity to your principal private residence, the entity that affects your capital gains tax position.
Your main home is defined by a number of key factors including where you keep your personal possessions, where your personal post is delivered and where you and your family spend the majority of their time. In legal terms this means your main home could be a property you rent or a home you've been given permission to use - on any terms - by a friend or relative.
If your main home currently falls into either of these categories and you're looking to buy a brand new property for use as your main home, if the resultant chain doesn't directly involve the transfer of another property the higher rate of stamp duty rate will apply.
These new rules came into being for expats on April 1, 2016 but there could very well be a loophole that will allow an expat who's sold their main home before November 26, 2015 to buy a new one before November 26, 2018 without paying the extra stamp duty.