When replacing your main residence, it’s important to consider Stamp Duty Land Tax implications. Kabina Tank of Croner i-Taxwise provides a view.
By Kabita Tank of Croner-i Taxwise
Q:
“My client has an existing main residence in London and has purchased a second residential property in Bedford with the stated intention of it becoming their new main residence. As a result of owning more than one residential dwelling at the point of purchase they paid the 3% Stamp Duty Land Tax (SDLT) supplementary charge.
They only resided in the newly acquired property for 4 months before putting it on rent, and then returned to live in the London residence.
They have now sold the first property and moved back into the second property; will they now be able to claim a refund of the 3% supplementary charge?”
A:
The purchase of an additional residential property for a consideration of £40,000 or more would be within the scope of the 3% charge, and the rules apply equally where only a part-shares of property with a value of £40,000 or more. The rules also take into account residential properties owned anywhere in the world for this purpose.
There is, however, relief available for a purchase as the replacement of your main residence, under FA 2003 Schedule 4ZA Para 3(6). SDLTM09800 outlines the main conditions, but to summarise:
- At the time of purchase, the new property was intended to be the purchaser’s main residence [para 3(7) (a)].
- In the 3 years following the purchase of the new property, the purchaser must have disposed of a main residence [para 3(7) (b)]. HMRC has the discretion to extend the period upon the taxpayer’s application with an effective date no earlier than 1st January 2017 (para 3(7A) and FA 2020, s. 76(4)). This was intended to allow for some flexibility during the COVID-19 emergency.
- The previous residence must have been used as their main residence at some point in the three-year period preceding the date of the purchase of the new property [Para 3(7) (c)].
- Immediately after the disposal of the old property, neither the purchaser nor the purchaser’s spouse or civil partner had a major interest in the old property.
In this client’s case, it needs to be established whether the terms of occupation of the new property demonstrate sufficient intention to reside there with a degree of permanence. HMRC’s guidance at SDLTM09812 includes this commentary (click here).
The higher rates of Stamp Duty Land Tax (SDLT) were introduced on 1st April 2016, and intended to apply to purchases of additional residential properties, such as second homes and buy-to-let properties.
More information can be accessed via Croner-i Taxwise.
Read more here about Stamp Duty Land Tax: higher rates for additional residential dwellings.
Article by Kabita Tank | cronertaxwise.com