Selling a Right to Buy (RTB) property in the UK has specific implications, especially regarding payback or repayment requirements if the property is sold within a certain period after purchase. Here’s an explanation of the impacts and the payback rates associated with selling a Right to Buy property:
What is Right to Buy?
Right to Buy is a government scheme in the UK that allows council tenants to purchase their homes at a discount. The discount amount depends on the length of time the tenant has lived in the property and whether it is a house or a flat.
Restrictions on Selling a Right to Buy Property
- Discount Repayment Period:
- If you sell your Right to Buy property within the first five years of purchase, you will need to repay some or all of the discount you received. This is known as the “discount repayment.”
- Payback Rates:
- The amount you repay is based on a sliding scale, depending on how soon you sell after purchasing:
- Year 1: If you sell within the first year, you repay the entire discount.
- Year 2: If you sell within the second year, you repay 80% of the discount.
- Year 3: If you sell within the third year, you repay 60% of the discount.
- Year 4: If you sell within the fourth year, you repay 40% of the discount.
- Year 5: If you sell within the fifth year, you repay 20% of the discount.
- After five years, you do not have to repay any of the discount.
- The amount you repay is based on a sliding scale, depending on how soon you sell after purchasing:
Calculation of Payback Amount
The amount you have to repay is calculated based on the percentage of the discount originally received, but it is also adjusted according to the value of the property at the time of sale.
- Example: If you bought your home with a £40,000 discount and sold it in the second year:
- You would have to repay 80% of the £40,000 discount.
- If the property’s value has increased, the repayment amount is based on the percentage of the discount in relation to the current market value.
Other Considerations
- Resale Restrictions:
- Local authorities or housing associations might have the right of first refusal to buy back the property if you decide to sell within the first 10 years of purchase. This means they must be given the opportunity to repurchase the property at market value before it is sold on the open market.
- Capital Gains Tax:
- Selling a Right to Buy property can have capital gains tax implications if it is not your primary residence. If you make a profit from the sale, you might need to pay capital gains tax on the gain.
- Impact on Housing Benefit:
- If you sell the property and then apply for housing benefit, the proceeds from the sale might be considered as capital, which could affect your eligibility for housing benefit.
Summary
- Repayment of Discount: You must repay some or all of the discount if you sell within five years, based on a sliding scale.
- Local Authority Buy-Back Rights: They have the right of first refusal for 10 years.
- Financial Implications: Be aware of potential capital gains tax and impact on benefits.
Selling a Right to Buy property can have significant financial implications, and it is important to understand these before proceeding with a sale. Consulting with a financial advisor or housing specialist can help ensure you are making informed decisions and complying with all relevant regulations.