Should we take out a bridging loan to buy our new property?

My husband and I are looking to move to a larger home to accommodate our growing family, however we’re having trouble selling our current property at the price we would like. We are exploring whether we could perhaps use a short-term bridging loan so we can purchase a new home immediately and don’t have to wait until we receive the right offer for our current property. We think this might also give us the edge over other prospective buyers who are stuck in a longer chain. Assuming we can secure such a loan, are there any tax implications we should consider, including when we do come to sell our current property?

Richard Jameson, partner in the private wealth team at Saffery Champness, says that in such a competitive property market, more people are considering using so-called bridging loans to finance the purchase of a new home before they have had a chance to sell their old one. However, you are entirely right to factor in the potential tax implications of doing so.

In contrast to buying as part of a chain (where you essentially exchange one home for another), purchasing a new home before you have sold your existing one means it qualifies for tax purposes as a second home. Therefore, if it wasn’t already, it will be subject to a 3 per cent surcharge on top of the standard stamp duty land tax (SDLT) rates, known as the higher rates for additional dwellings (HRAD). Your SDLT bill must then be paid within 14 days of completion.

Headshot of Richard Jameson, partner in the private wealth team at Saffery Champness
Richard Jameson, partner in the private wealth team at Saffery Champness © Richard Townshend

However, as you are ultimately replacing your existing home, you can reclaim the surcharge once your previous property has been sold — provided it is within three years of your buying the new property, and provided you make a claim within 12 months of the date of sale.

The main issue is therefore one of cash flow when buying the new property, so it is important to factor in all transactional costs including SDLT, legal fees and insurance when considering how much you would need to borrow for your bridging loan, as it may be a little while before the SDLT surcharge is refunded by HM Revenue & Customs.

There are also potential capital gains tax (CGT) considerations when it comes to selling your old home.

Principal residence relief (PRR) allows you to sell your main residence without incurring a CGT charge for periods of occupation and deemed occupation. The final nine months of ownership of a main residence, regardless of how the property is used during this time, is treated as a “deemed occupation”. So, if you purchase your new home and relocate there with your family, it will not cause you to incur a CGT charge, provided you sell your old property within nine months. If no CGT is payable on the disposal, you do not have to complete a CGT tax return.

If you continue to live in both properties as a residence, it is possible to elect which property is your main residence for PRR purposes. Please be aware though that a married couple can only have one PRR at any one time. In the absence of an election, HMRC will determine which property was the main residence on the facts.

If, however, you dispose of the property after the nine-month window has elapsed, any gain will be liable to CGT, but only for the proportion of time that the property was not covered by PRR. This will mean you need to complete a CGT tax return within 60 days of completion and pay any tax due once you’ve factored in your, and your spouse’s (if the property is held in both names), annual CGT exemption of £12,300.

In the interim between buying your new home and selling your old one, you may find it makes financial sense to rent out your former home to offset any maintenance, and help cover the interest payments on your bridging loan, while you find a suitable buyer. In which case, it is important to keep accurate records of all rental income and expenses as these will need to be reported in your annual self-assessment tax return by January 31, and your net income will be taxed at your income tax rate.

Can I claim back tax on digital losses?

I’ve got thousands of pounds invested in non-fungible tokens (NFTs) and crypto and am worried about the news that NFT values have plunged and that bitcoin has lost more than half its value in just six months. Can I claim back tax on digital assets that have made significant losses? I am UK resident and domiciled.

Geoffrey Todd, private client and tax partner at Boodle Hatfield, says although not explicitly confirmed by HMRC, the tax treatment of non-fungible tokens (NFTs) is expected to be similar to that of other cryptoassets. If you’re tax resident in the UK, unless you’re trading very large amounts of cryptoassets, capital gains tax is likely to apply to any losses you make. If you are trading, income tax will apply.

From a tax perspective, any losses on your cryptoassets only come into being when you realise those losses — in other words, when you exchange your tokens for money, for goods or services, or for a different type of token (including swapping one NFT for another). Giving your tokens away to someone other than your spouse or civil partner (or a “connected person”) would also count as realising your losses.

Headshot of Geoffrey Todd, private client and tax partner at Boodle Hatfield
Geoffrey Todd, private client and tax partner at Boodle Hatfield

Regardless of any fluctuations in the value of your cryptoassets while you have owned them, you will only have made a loss for tax purposes if the value of the cryptoassets when you dispose of them is less than when you acquired them. Certain costs incurred in acquiring and disposing of the cryptoassets like transaction fees and some exchange fees can be deducted, which may reduce the gain or result in a loss.

If you’ve realised taxable gains on other assets in the same tax year, these can generally be offset by your crypto losses. If you don’t have any gains to offset this tax year, you can carry forward any unused losses to offset gains in future tax years. However, you can’t use losses in this tax year against taxable gains made in previous years, including gains you made on crypto trading in previous years.

From the end of the tax year in which you realised the loss, you have four years to register the loss with HMRC. If you don’t normally complete a self-assessment tax return then you should write to HMRC.

If all of your holding in a particular cryptocurrency or cryptoasset has become worthless, you can hold on to these assets and make what’s called a negligible value claim to HMRC. If your claim is successful, you’ll be treated for tax purposes as having disposed of your holding or asset and immediately reacquired it at its negligible value.

This means you’ll be treated as having made a loss which you can use as outlined above, even though you are still holding on to the assets. However, this will give you a new reduced acquisition cost by which any future gains will be calculated. Therefore you might want to avoid this if you don’t have any gains to offset or you think the value of your asset is likely to recover.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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