Hi everyone, new here and hoping someone can help because my head is spinning. We accepted an offer on our family home last week (four bed detached in Hampshire) and the plan is to move into rental for six months or so while we search for a forever home in the West Country, probably Devon or Somerset. The Sale is progressing well so far, our buyers are chain free and have a mortgage in principle so fingers crossed.
The complication is this. My late father left me a small apartment in Spain when he passed away in 2019. It is nothing grand, a one bed in a complex near Malaga which we use for holidays a couple of times a year. It is mortgage free and probably worth around 120,000 euros. I have never rented it out or treated it as an investment, it is just somewhere we go.
My worry is that when we come to Purchase a new property in England, we will be hit with the higher rate of stamp duty because we technically own a second property abroad. I have read conflicting things online… some sources say overseas property counts, others say it depends on whether you are replacing your main residence. Given that we will have sold our main residence and be renting at the point of Purchase, I am confused about where we stand. Would we still qualify for the main residence replacement relief even though there is a gap between selling and buying? And does the Spanish apartment count as an additional dwelling for the surcharge even though we have never lived in it as a main home?
I asked our solicitor about this and she said she would look into it but hasnt come back to me yet and I would rather not go in blind. Any advice from people who have been in a similar position would be really appreciated. Thanks
The Spanish flat counts. HMRC looks at worldwide property holdings at the end of the day of purchase. If you own any other residential property anywhere at that point you pay the surcharge unless the replacement main residence rules apply. The gap between selling and buying shouldnt matter as long as the new purchase is intended to replace your main residence and the old one has been sold. Check HMRC guidance on Schedule 4ZA paragraph 3, it covers the replacement criteria. Your solicitor should know this already.
Thanks @rb471956, that is what I was afraid of but at least now I know for certain. So just to make sure I have this right, if we sell our family home, go into rental, and then buy a new place later, we would STILL pay the 5% surcharge because of the Spanish flat even though we would only own one UK property at that point? That seems incredibly harsh given that the flat in Spain was inherited by my husband from his mother years ago and is worth maybe £60k at best. It is not exactly an investment empire.
I suppose my follow up question is whether there is any way to avoid it… like if we sold the Spanish flat before completing on a new Purchase would that change the position? The flat is in my husbands name only not joint, if that makes any difference. We have been vaguely talking about selling it anyway because neither of us goes out there anymore and the community charges keep going up, but the Spanish property market is apparently quite slow at the moment and I would not want to hold up our Purchase waiting for it.
Also does anyone know roughly how much the surcharge adds on a property around the £400k mark? I tried to work it out on the HMRC calculator but got confused because the thresholds seem to have changed again. My head hurts already and we havent even started the buying process yet. Any help gratefully received.
The husband-only ownership does not help you. For SDLT purposes, if you are buying jointly as a married couple, HMRC treats you as a unit. If either of you owns a residential property anywhere in the world at the end of the day of completion, the surcharge applies to the joint purchase. It does not matter that the Spanish flat is in his sole name.
On the numbers, at £400k the standard SDLT is £10,000. The 5% surcharge adds a flat 5% across all bands, so that is an additional £20,000, making a total of £30,000. That is a significant sum and worth planning around if you can. If you sold the Spanish flat before completing on the new UK purchase, and your family home had already been sold, then at the point of completion you would own no other residential property and the surcharge would not apply. There is also a reclaim mechanism if you sell the overseas property within three years of paying the surcharge, but given the amounts involved it would be cheaper and simpler to sell it first if that is feasible.
Grumpy is right on the reclaim route but dont plan around it. Selling property in Spain can take a year or more and HMRC wont extend the three year window because you couldnt find a buyer. If there is any realistic prospect of selling the flat before you complete on the new UK purchase, do that first. Otherwise youre handing over £20k and hoping to get it back later. Thats not a plan, thats a gamble.