If you and your spouse or civil partner both owned property before getting together and are now remortgaging, beware – a new joint remortgage on the home you live in could leave you liable to pay higher-rate stamp duty.
The penalty can arise because some mortgage companies are forcing homeowners to apply with their spouse or civil partner – a joint application – when remortgaging, even if they originally bought the property as a single person.
If your partner already owns another home, the remortgage means he or she risks being classed by the taxman as acquiring a "major interest" in a second home. This triggers the higher-rate stamp duty usually payable on purchases of additional homes.
Couples who find themselves in such situations may need to weigh up whether they'd be better off finding a lender who won't insist on a spouse being added to the new mortgage.
The issue was triggered by tax changes in April but has only surfaced now as buyers fall foul of the rules.
From 1 April this year higher rates of stamp duty have been payable by people who already own a home and then buy, or acquire a major stake in, another property that isn't replacing their main residence. This typically hits holiday homes and buy-to-let purchases.
For help with remortgaging, download our free Remortgage Guide 2016.
Get Our Free Money Tips Email!
How much more stamp duty will some pay?
Higher-rate stamp duty amounts to an extra three percentage points payable above standard stamp duty – so where purchasers would normally pay stamp duty of 2%, those buying additional properties would pay 5%.
And while ordinary stamp duty is only paid on the value of your property above £125,000, the higher rate for additional homes is paid on the entire value of the home (unless it's worth less than £40,000 – these small purchases are exempt).
In practice, that means those buying a £200k home as their sole property would pay £1,500 in stamp duty, whereas those buying a £200,000 second home (or acquiring a £200,000 share in one) would pay £7,500 – five times more.
The reforms, introduced by former Chancellor George Osborne, were a bid to crack down on buy-to-let landlords, who stand accused of pushing house prices beyond the reach of first-time buyers. Announcing the new rules, Osborne said: "Frankly, people buying a home to let should not be squeezing out families who can't afford a home to buy".
However, the Financial Times recently highlighted the case of a married couple – its online story is behind a paywall – who face paying the higher rate simply because they wanted to remortgage the home they actually live in. The case shows that stamp duty, including the higher-rate duty, can hit transfers of equity between spouses as well as traditional house purchases.
Read our Stamp Duty guide to learn more about how this tax works.
Could this affect me?
This situation could affect you if you fulfil the following criteria:
- You are in a marriage or civil partnership in which each partner owns their own property.
- You both already live in one of those properties together – there's an exemption to paying the higher rate for people replacing their main residence, but that doesn't apply if you're remortgaging your current home while retaining your previous property.
- You decide to remortgage that property, and you get a joint mortgage – this can happen if the lender insists the other partner/spouse is added to the new mortgage.
- The amount of the new mortgage is over £80,000 (higher-rate stamp duty kicks in for purchases or transfers of equity worth £40,000 or more).
Can I remortgage our home without my spouse?
If you're likely to be affected by this issue, it's worth considering when remortgaging whether you're better off not getting a joint mortgage – not all lenders insist on a spouse being added when remortgaging.
A spokesperson for the UK's largest mortgage broker London and Country told us couples in this situation would still normally find "a good range of mortgage lenders who wouldn't insist on that", including major lenders such as HSBC, Barclays, Halifax and NatWest.
It's worth weighing up, when planning this, whether the saving you could make on stamp duty would be offset by a more limited choice of mortgage. But London and Country says those seeking to remortgage in the name of a single spouse wouldn't necessarily be barred from the most competitive rates as a result.
How did this loophole emerge?
In the case reported in the FT, each partner had their own property when they married, with the wife moving into her husband's home three years ago. Now they want to remortgage the home they both live in, but their mortgage lender has insisted the wife is added to the new mortgage.
Because she still owns her previous property – which she lived in before she was married but now lets out to tenants – signing her name to the new mortgage will make her a stakeholder in multiple properties.
That would mean she'd be liable to pay higher-rate stamp duty on the share of the home she's acquiring from her husband.
When MoneySavingExpert.com spoke to the Treasury, a spokesperson confirmed that remortgaging an existing main residence could still land you with a substantial bill for higher-rate stamp duty, even if you're not actually buying a property in the conventional sense.