Why you shouldn’t buy more than one in a development!

Why you shouldn’t buy more than one in a development!

Posted on April 16, 2006 in Buying, Capital, Cashflow, Educational blog, Property, Solicitor, UK

Brett Alegre-Wood

There is a little known ruling by the government that is called ‘Linked Transactions’ these are transactions that are considered to be linked for the purpose of stamp duty.

So what does this mean exactly?

Well imagine you bought 1 property in a development and the contract price was £150,000. You would only pay 1% stamp duty or £1500.

Now imagine you thought this development was so great you bought another, I am sure you know the theory, if one if so great then two must be greater. Well not necessarily true anymore.
Assuming you bought the next one a little cheaper at £105,000 which is below the stamp duty threshold. So no stamp duty to pay on this. Well you could be in for a shock.

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Under the ‘Linked Transaction’ provision your stamp duty may well be calculated as such £150,000 + £105,000 = £255,000 which now puts you into the 3% stamp duty bracket so your original £1500 that was due could now become £7650. A huge difference just because you wanted the extra plot in the same development.

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This is exactly why I don’t let my clients buy more than one plot in any development unless they are fully aware of the potential stamp duty issue.

Now the most important point to note is that like most things governmental they have given the legislation but not provided any real definite guidelines. So the interpretation is up to the individual. I would certainly recommend to err on the side of caution because the additional £6150 goes a extra long way.

Oh, and the purpose of this blog, don’t be fooled by property clubs who try and sell you quantity in a development, or say buy 5 and have a million pound portfolio now. You may well get away with it once or twice but then again you may not and I can tell you that they won’t be the ones paying the stamp duty.

Live with passion,

Brett Wood

PS. If you have done this without knowing the implications then give me a call and we can chat about ways to manage this possibility.

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