Britain’s Deputy Prime Minister has found herself in hot water today, over claims she may have paid less stamp duty by changing her ‘main’ residence for tax purposes.
Stamp duty is the main property tax paid by homebuyers in England and Northern Ireland. It is paid when someone buys a home, with those buying second homes liable to pay more.
Concerns were raised over the level of stamp duty paid by Angela Rayner for a flat she bought in Hove, East Sussex, which she reported as her main place of residence to tax authorities.
According to reports in the Telegraph, the Deputy Prime Minister took her name off the deeds of her Greater Manchester property only weeks before purchasing the £800,000 seaside flat.
Ms Rayner’s alleged changes to her property affairs are legal, however, they may spark debate as to whether the Housing Secretary purposefully made decisions to pay less council tax and stamp duty.
Some may also see it as controversial given Labour’s reported plans to levy more tax on those who own high-value properties.
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Property portfolio: The Deputy PM owns a smart £800,000 apartment in Hove. It has been reported that she took her name off the deeds of her Greater Manchester property only weeks before purchasing the seaside flat
It comes after the Daily Mail revealed Ms Rayner, who is also Labour’s Housing Secretary, had purchased the apartment in addition to the £650,000 house she owns in her Greater Manchester constituency.
The reported deed changes allegedly allowed the Cabinet minister to pay £30,000 in stamp duty instead of £70,000, which would have been applied if the property was her second home.
Ms Rayner is also said to have told Tameside Council that her home situated in her Ashton-under-Lyne constituency continues to be her primary residence.
Brighton and Hove Council have also been notified by the politician that her apartment there is a second home, for the purposes of council tax, according to the Telegraph.
We explain the rules around stamp duty, how much people pay and how this is increased on second homes – as well as getting expert views on Rayner’s situation.
Controversy: The Deputy Prime Minister reportedly took her name off the deeds of her Greater Manchester property only weeks before purchasing the £800,000 seaside flat in Hove, East Sussex
How much stamp duty do people pay?
Home movers pay nothing on properties that cost less than £125,000. On the amount from £125,001 to £250,000, they pay 2 per cent, then on the portion from £250,001 to £925,000, they pay 5 per cent.
Above that it increases to 10 per cent and then 12 per cent for the most expensive homes.
Under the current rules, this means that an £800,000 property purchase, bought for the owner to live in full-time, would cost £30,000 in stamp duty.
First-time buyers pay nothing on properties up to £300,000, then 5 per cent on the portion from £300,001 to £500,000.
If the price is over £500,000, they cannot claim the relief and therefore pay the same as normal home movers.
What counts as a main residence for stamp duty purposes?
There is no strict legal definition of what counts as a ‘main residence’.
If a claim is disputed, HM Revenue & Customs will make its own decision based on the available evidence.
The main factor is usually where the person spends most of their time, but other factors, such as where they are registered with a GP, are also relevant.
What stamp duty is due on second homes?
In the Autumn Budget last year, Labour changed the rules so that second home purchases in England were subject to an additional 5 per cent stamp duty surcharge, on top of the homeowner rates described above.
This surcharge, which also applies to buy-to-let landlords, had been 3 per cent previously.
Someone buying a second home for £500,000 can now expect to pay £40,000 in stamp duty, up from £27,500 before last year’s Autumn Budget.
In Angela Rayner’s case, buying an £800,000 home, she would be liable to pay £70,000 in stamp duty, up from £67,500 previously.
What counts as a second home?
A second home counts as any property someone holds or buys in addition to their principal main residence. This could include a buy-to-let, a holiday home or holiday let or a pied-à-terre.
HMRC’s guidelines are fairly clear on when someone becomes liable to pay it.
The 5 per cent stamp duty surcharge needs to be paid by anyone who has not sold their main residence on the day they complete their new purchase. This is because they’ll own two properties.
However, home buyers can apply for a stamp duty refund if they sell their previous main home within 36 months.
This rule is in place so people who have a period of overlap when buying a new home to live in aren’t unfairly penalised.
If it takes longer than 36 months to sell their previous main home, there is an exceptional circumstance where they may still be able to claim the money back.
The delay in selling must be because of reasons outside their control.
In the case of Angela Rayner, rather than sell her main home she reportedly removed her name from the deeds of her Greater Manchester property weeks before purchasing the flat in Hovex.
The reported deed changes allegedly allowed the Cabinet minister to pay £30,000 in stamp duty instead of £70,000, which would have been applied if the property was her second home.
‘To avoid the second home surcharge, the new property must genuinely replace your main residence,’ says Karen Noye, a tax expert at wealth manager, Quilter.
‘HMRC does not accept simple declarations. It considers where you actually live, such as where you’re registered to vote, pay council tax, and spend most of your time.’
Tax hike: Since October last year, second home purchases in England have been subject to an additional 5% stamp duty surcharge on top of existing rates
What questions are being asked?
While Rayner’s alleged changes to her property affairs are legal, tax experts have raised concerns over whether the actions were in the ‘spirit’ of the law.
‘There are more questions for Angela Rayner to answer before it becomes clear whether her actions were within both the letter and the spirit of the law,’ says Phil Blackburn, tax partner at Lubbock Fine.
The key issues to determine the stamp duty liability, according to Blackburn, is where the genuine main residence for Angela Rayner is and if the Manchester property was previously the main residence, was there a genuine disposal of the property.
There is no suggestion currently that HMRC is investigating the issue.
Even if the letter of the law for stamp duty and council tax have been followed, is that good enough for the public given the Government’s own policy of taking a dim view of legal tax avoidance?
However, if it did, questions might be asked around where the family spends the majority of its time, where any children go to school and which is the residence that the individual is registered to vote in.
‘Even if the new property has become the main residence, the additional stamp duty charge will only be avoided if the previous main residence has been properly disposed of,’ adds Blackburn.
‘There isn’t enough information in the public domain to determine these issues, although the reports seem to suggest some potential inconsistencies between how the properties have been treated for stamp duty and council tax purposes.
‘And even if the letter of the law for stamp duty and council tax have been followed by implementing some careful planning, is that good enough for the public given the Government’s own policy of taking a dim view of legal tax avoidance?’
Andrew Boast, director at property lawyers Sam Conveyancing, says the removal of her name from the deeds of the Manchester property raises some questions as well.
‘It sounds as though Angela Rayner has removed her name from a property in Manchester so that when she bought her new home in Hove for £800,000 she didn’t have an interest in another property, thus avoiding the 5 per cent higher stamp duty rate,’ he says.
‘For most people, simply taking your name off of a property valued at £650,000 wouldn’t be an option.
‘Why would you give away a property that valuable to save £40,000 in stamp duty? Who now owns the property in Manchester?’
Who remains on the property’s deeds?
The answer may be found in the person who remains on the title deeds of the property in Greater Manchester.
This has not been confirmed, but it is possible that it could be Rayner’s ex-husband, Mark Rayner. The pair reportedly separated in 2020.
Under UK law, property transfers between spouses or civil partners as part of a divorce or separation are generally exempt from stamp duty, provided the transfer is made under a court order or a formal written agreement connected to the dissolution of the marriage or civil partnership.
However, complications can arise when one party purchases a second property before the divorce is finalised.
HMRC treats married couples and civil partners as a single unit for stamp duty purposes unless they are formally separated by court order or deed.
This means that if one spouse buys a new home while still legally tied to the other, and retains an interest in the marital home, they may be liable for the 5 per cent stamp duty surcharge on additional dwellings.
Olivia Egdell-Page, partner and head of property department at Joseph A Jones & Co
If the spouse has fully transferred their interest in the marital home and does not retain any ownership, either through sale, gift, or court-ordered transfer, they are no longer considered to own an additional property.
‘It is not clear to whom that property has been transferred,’ says Olivia Egdell-Page, partner and head of property at law firm Joseph A Jones & Co. ‘If this were to a spouse or civil partner, it would not be sufficient to overreach the application of the higher stamp duty rate.’
‘If the transfer has been made to an individual or third party, then this may well be sufficient upon a strict application of the stamp duty rules in this area.
‘Presumably, Rayner will have received robust legal and likely tax advice in connection with the proposed transfer and purchase – so I’d expect that any such loopholes would have been considered and the transactions completed accordingly.’
It’s a bad look given all the talk of property taxes
Rayner’s tax affairs are newsworthy given Labour’s rumoured plans to clobber some households with new property taxes in the upcoming budget.
First, Rachel Reeves is considering plans to scrap stamp duty and council tax in favour of a new system.
Potentially, it could see the stamp duty bill homeowners pay on purchase could be scrapped in favour of an annual tax for homes above £500,000.
The Chancellor is also rumoured to be considering charging some homeowners a levy if they sell their home and make a profit.
At the moment, people don’t have to pay capital gains tax if they sell the home they live in and the price has increased since they bought it.
But according to The Times, Reeves is considering changing the rules so that capital gains tax would become payable on the sale of homes worth more than £1.5million.
On residential property, capital gains tax is currently charged at 18 per cent for basic rate taxpayers, and 24 per cent for higher rate taxpayers – but with any significant gain, people are likely to pay most of it at the higher rate.
This is because a capital gain is added to a person’s normal income to decide the tax rate.
The Times said a threshold of £1.5million would hit around 120,000 homeowners who are higher-rate taxpayers with capital gains tax bills of £199,973.
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