Expats Face Stamp Duty Tax Trap When Moving Back To UK

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British expats renting a home before buying a property to live in face unexpected tax bills of thousands of pounds.

New stamp duty rules introduced in April 2016 include an unforeseen tax trap for anyone renting a home before buying another to live in.

The result is they pay an extra 3% in stamp duty which can add thousands of pounds to the costs of buying a property.

The rules exempt property owners who are replacing their main home with another from the stamp duty 3% surcharge.

They pay stamp duty at the standard rates, staring at 2% for a property valued at more than £125,000 and 12% for one worth more than £1.5 million.

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Stamp duty at enhanced rates

But anyone who rents a home before buying has to pay stamp duty at the enhanced rates because they are not replacing a home they own with another.

So an expat returning from overseas who rents a home before buying falls into the tax trap.

If they were to buy a home worth £350,000 as a replacement main residence, standard stamp duty would be £7,500.

But at the enhanced stamp duty rates, the bill jumps to £16,800 for the same property – an increase of £9,300.

Normally, the enhanced rates are reserved for property buyers purchasing a buy to let, holiday let or second home.

Another point to watch is that the enhanced rate starts lower than the standard rate. Properties worth £40,000 or more are taxed at a rate of 3% up to £125,000, while the standard rate is zero up to £125,000.

Take advice about this tax workaround

MP Helen Grant has pledged to take the issue up with Chancellor George Osborne.

For landlords with buy to lets or other property other than a main home, a solution could be moving into one of these for a short time as a residence rather than an investment and then buying another home.

The value of a main home is not relevant for stamp duty, just that the property was a main residence.

Expats should take tax advice before doing this as changing an investment property into a main residence can have adverse tax implications.

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