Q My girlfriend and I have been saving for some time towards buying a property. We currently rent a one-bedroom flat and are in the process of purchasing a new-build property in Acton, west London.
As the legal side of our new-build purchase has developed, we have been shocked to learn that we will have to pay the 3% stamp duty surcharge. This is because a few years ago, my girlfriend inherited a share of her grandmother’s house in Italy (my girlfriend is Italian and not a British passport holder). She has never lived in this property or made any money from it. As far as I can see, we have three options.
First, my girlfriend could sell her share of the Italian house. However, this would take some time, involve another country’s real estate and legal systems, and lose something she feels connects her to her upbringing.
Second, as we are unmarried, we could acquire the new property in my name only. However, to secure a large enough mortgage, we need it to be calculated from both our salaries and, with the property in just my name, banks would only offer a home loan based on my salary.
Third, we could take the stamp duty hit. This final option is where we seem to be headed. It seems cruel, though. If we owned our current flat and were selling it, we would not face higher stamp duty on the new-build as we would be deemed to be selling one main residence and moving into another one. Moreover, the higher rate of stamp duty applies to the entirety of the transaction.
Presumably this loophole may affect other renters in London where one of the purchasers has an inherited share of a property. MJ
A I may have good news for you, but it depends on when your girlfriend inherited her share of her grandmother’s house, how big a share it is and what the share is worth. The guidelines for the higher rate of stamp duty say that “when applying the higher rates, a small share – 50% or less – in a single property which has been inherited within the 36 months prior to the transaction [ie 36 months before buying another property] will not be considered as an additional property”.
To put it another way, people who inherit less than a half-share in a property in the three years before buying a home to live in will not be liable for the higher rates of stamp duty.
The bad news is that if your girlfriend inherited her share in the Italian property more than three years ago and/or she owns more than a half share, the higher rate of tax will apply.
However, if her share is worth less than £40,000, you should only have to pay the standard rate of stamp duty on your London home.
