Additional Stamp Duty Question

[romeogolf]

I've had several people give conflicting advice on this (including one so-called professional... ) so was hoping someone here could confirm this for me. I've listed below the details and what I believe to be correct. Am I right? Thank you!

- I have never owned the home I live in.
- I have two properties which are let out to tenants. One purchased in 2009, the second more recently earlier this year.
- I am therefore liable for higher-rate SDLT on any further home purchase, including one in which I plan to live myself.
- This is the case even if I were to sell one of the above properties as neither of them have ever been my main residence
- I would need to sell both properties (and pay associated capital gains tax) to avoid this increased SDLT.

[Eric Mc]

I would say that is all correct.

[Moominho]

Yes, I see that as correct. Unless you sell both first, you will be liable for the extra 3%.

[recordman]

I agree with the above replies.

A question: If you sold them both within 3 years after purchasing your own residence, would the 3% surcharge be repayable to you?

[Jobbo]

recordman said:

A question: If you sold them both within 3 years after purchasing your own residence, would the 3% surcharge be repayable to you?

No; neither has been his main residence so the 3% surcharge wouldn't be repayable.

ETA: however, by giving notice to the tenant on one and living in it as his main residence, then selling it to buy a new main residence, would be a way round the 3% surcharge. Possibly a bit drastic but only requires selling one, not both.

[romeogolf]

Jobbo said:

ETA: however, by giving notice to the tenant on one and living in it as his main residence, then selling it to buy a new main residence, would be a way round the 3% surcharge. Possibly a bit drastic but only requires selling one, not both.

You've got my attention... Could you explain how this might work? Frustratingly, we have considered selling the larger property to help fund the purchase of our own but the smaller one is the one local to our work which we could feasibly live in for a short time.

[Jobbo]

romeogolf said:

Jobbo said:

ETA: however, by giving notice to the tenant on one and living in it as his main residence, then selling it to buy a new main residence, would be a way round the 3% surcharge. Possibly a bit drastic but only requires selling one, not both.

You've got my attention... Could you explain how this might work? Frustratingly, we have considered selling the larger property to help fund the purchase of our own but the smaller one is the one local to our work which we could feasibly live in for a short time.

If the 3% surcharge is sufficiently large that it's worth considering, then it may be fairly straightforward. Though with CGT on the sale, transaction costs etc would it actually be worthwhile?

On completion of your new purchase, your solicitor will complete an SDLT return. You make a declaration as to whether you own multiple properties at the end of the day of completion - obviously you will do. Then you make a declaration as to whether you are replacing your main residence. If you're living in the house which you previously rented out, it will be your main residence; this isn't the same test as for CGT. I can't cut and paste the flowchart because it's the copyright of Thomson Reuters, but here's a very brief bit from HMRC: https://www.gov.uk/guidance/stamp-duty-land-tax-bu...

Beware though - I don't believe anyone has yet tested what is a 'main residence' in the courts and HMRC may decide the house isn't your main residence (even if you're living in it as your only dwelling) because you bought it as a buy-to-let. You'd need to get some specific indemnified advice from a tax lawyer or accountant.

[Eric Mc]

This tax is still new and little or no case law testing has occurred yet. Often, tax law needs some test cases to see how far the law actually extends.

As ever, what appeared a fairly straightforward set of rules starts appearing complicated once people start looking at the nooks and crannies of the legislation.

[Jobbo]

I concur with Eric. HMRC's SDLT manual is here: https://www.gov.uk/hmrc-internal-manuals/stamp-dut... and I quote:

There is no definition of only or main residence so it is a question of fact whether a property is, or was, the individual’s only or main residence.

The factors and criteria set out in CG64551-2 may be useful. Note in particular that there is no requirement that the new only or main residence should be in the UK.

It follows that if an individual acquires property both in the UK and abroad at most one of them can be the individual’s only or main residence.

There is no provision, as there is for Capital Gains Tax, for an individual to nominate one property as an only or main residence.

So they've left it open to define it further with guidance etc.

[recordman]

I should just like to thank you Jobbo for your excellent reply. Much appreciated!

[Jobbo]

No problem; we've been having 'fun' in the office discussing this 3% surcharge for a year now. Everyone has their own personal circumstances which don't neatly fit into what HMRC thought about in advance!