HMRC releases revised guidance on the 3% SDLT surcharge
On 29 November 2016, HMRC published a revised Guidance Note on the 3% SDLT surcharge to replace the Guidance Note issued with the Budget on 16 March 2016. Highlights include:
- A new chapter 9 with a further 24 examples.
- Resolution of the confusion about how the three year tests work for the replacement of only or main residence exception. There is much rewriting in paras 3.16 to 3.29 and elsewhere, particularly at Chapter 8 A12. See our article on the replacement exception.
- There is more on the replacement exception generally, for example at para 3.6A, in Chapter 8 at A1, A8, A10, A20 and in Chapter 9 at Examples 1, 2, 3, 4, 13, 14, 15, 16, 21 and 24.
- The “granny flat” cases are now addressed at 2.10A – 2.10E and at 4.1A with further examples in Chapter 9 at Examples 20 – 22. See our article on the issues with granny flats.
- HMRC now state expressly that a share in a property counts as a “major interest”. This means that not only can purchases of shares in properties be liable to the surcharge, but a disposal of a share in a property can help establish that the replacement of an only or main residence exception can apply. See paras 3.8, 3.17, 3.17A, 3.18, 3.19A, the introductory text to Chapters 8 and 9 and Chapter 8 A18 (A18 is particularly clear on the point, elsewhere it is often ambiguous). Also, in Chapter 9 see Examples 6, 7, 9, 10, 11.
- There is an acknowledgement that the surcharge rules can hit those extending their lease, see para 3.6A and Chapter 9 Example 13 but at least there is now a recognition that the replacement of only or main residence exception can sometimes apply.
- There is a little more about the interaction between the surcharge and claims for multiple dwellings relief at paras 2.10D, 5.12, Chapter 8 at A22 and Chapter 9 at Examples 21 and 22. HMRC do not now state that the surcharge is always due if MDR is claimed in a granny flat case.
- It is made clearer that where property is held by legal owners as nominees (also called “bare trustees”) the rules attribute the interest in the property to the beneficiary. See paras 3.13A and 3.43A and Chapter 9 Example 19.
- There is a little on purpose-built student accommodation at para 2.8A.
- Mixed property gets another mention at the new 3.15A and in Chapter 9 Example 5.
- The trap of a gift of a share in a property subject to a mortgage is mentioned in Chapter 9 Examples 8, 10, 11.
On the negative side there is still much missing, including a fuller explanation of the meaning of "dwelling" (for example what of a building designed as a town house but used for many years with little or no physical adaptation as an office which would need planning consent to change the use back to residential?) More guidance is also needed on the interaction of the surcharge with multiple dwellings relief.
The rules continue to operate in a seemingly arbitrary way. Sometimes those buying a house to live in are caught by the surcharge, while a property can be bought to rent out without the surcharge applying!
The charge can apply to those transferring property interests as part of a remortgage or who extend their lease. These cases are well outside the policy of the legislation, but are caught by the way it has been enacted. HMRC have not mitigated this with guidance and say that legislation is needed, but that it is unlikely as the Government has “other priorities”.
We continue to see a large volume of enquiries from buyers confused by the surcharge, some of whom have received conflicting advice and often incorrect advice from HMRC.
If you have a residential purchase for which you need to use a firm having specialist knowledge of SDLT and how the additional 3% would impact your situation, please contact Blake Morgan's Lorna Munro - head of residential conveyancing for a quote.