SDLT surcharge on additional residential properties: Updated guidance
Originally posted by John Shallcross on 29 March 2017 and updated on 27 November 2018.
On 24 March 2017, just ahead of the first anniversary of the SDLT 3% surcharge coming into force on 1 April 2016, HMRC updated their brief online guidance called "Guidance Stamp Duty Land Tax: buying an additional residential property" to include text on partnerships, trusts and inherited properties.
It was a curate’s egg, helpful in parts, but with some mistakes and misleading comments. Blake Morgan dissected the HMRC updated guidance piece by piece – read the full analysis here. HMRC subsequently rewrote the guidance and the new version was published in August 2018, here is a link: “Guidance: Higher rates of Stamp Duty Land Tax” This time they consulted on the guidance before publishing it and it is much better.
Although the guidance which this note comments on has been superseded, the points made could still be of assistance, so this piece has been left on line.
Our SDLT specialist John Shallcross suggested that the two areas which could have caused the most confusion in practice were the following:
If you replace your main home
HMRC stated: "You won’t have to pay the higher rates if you sell your main home on the same day you buy your new home."
Blake Morgan comments: Yes, but nor are the higher rates payable in many cases where a main home was sold before the purchase of the new home. This area is one that causes much confusion in practice, so why could this not be made clearer here? At the time of publication the three year rules were not yet in force where the sale is before the purchase. See more in our previous blog on the topic.
Also the disposal of the previous main home does not have to be by way of sale for the replacement exception to be potentially available. It could also be a gift, or perhaps on divorce or separation.
It would have been even more helpful if HMRC had said that disposing of a “major interest” in a previous main residence can also be enough to trigger the replacement exception and explain what this means. (Note that for purchases completing on or after the date of the Autumn Budget of 22 November 2017 the rules are rather tighter. A person must dispose of all of their major interest. Also, a spouse/civil partner must be left with no major interest in the previous main residence.)
Ownership of the property – Spouses and civil partners
HMRC stated: "You may be viewed as the owner of a property if it is owned by your spouse or civil partner.
This means if one of you already owns a property and the other person purchases another property, the purchase will be charged at the higher rates.
Spouses or civil partners that are permanently separated will not be treated in this way."
Blake Morgan comments: This is not what the legislation says! Sloppy language can lead to confusion.
What the legislation says is that a spouse or civil partner is usually treated for surcharge purposes as a joint purchaser, even if they are not joining in the purchase. The effect can be quite different from the way it is described by HMRC in this latest guidance! See the following two examples:
Example 1: David and Caroline
David and Caroline are married. David solely owns two let properties worth well over £40,000 each and five years ago (before David and Caroline met) sold another house he owned and had lived in as his only residence. David has bought no property since that sale but has been living in rented accommodation, most recently with Caroline. Caroline owns no other properties. Caroline is now buying a house, it will be entirely hers, but they both will live in it as their only residence, with David retaining his two let properties. The purchase will complete before 27 November 2018.
The HMRC shorthand “You may be viewed as the owner of a property if it is owned by your spouse or civil partner” suggests that the surcharge will be due on Caroline’s purchase as David owns other properties.
But this is not how the surcharge works. The legislation requires us to treat both spouses as joint buyers, even if they are not. We then have to look at them individually as if they were buying on their own. If for either of them the surcharge would have been due, then it is due for the whole transaction.
Looking at Caroline on her own, she owns no other properties, so she would have escaped the surcharge. Looking at David on his own, he can benefit from the replacement exception. So the surcharge is not due on the purchase, despite the impression given by the amended guidance.
Note following the Autumn Budget 2017: If Caroline had never acquired a property before she might qualify for first time buyers’ relief in this situation.
Example 2: Adam and Eve
Adam and Eve are married. They have been living in a house they pay rent on but are buying a house for them both to live in as their main residence (it matters not for surcharge purposes whether it is one of them or both of them who are buying). It will be the first time either of them has owned a property that they live in, though together they own in equal shares a holiday home in Spain that is now worth only £70,000. There are no other property interests that count against them for surcharge purposes.
The HMRC shorthand “You may be viewed as the owner of a property if it is owned by your spouse or civil partner” suggests that the surcharge will be due. The replacement exception is not available and together they own another property worth £40K or more.
But this is not how the surcharge works. The legislation requires us to treat spouses as joint buyers, even if they are not. We then have to look at them individually as if they were buying on their own. If for either of them the surcharge would have been due, then it is due for the whole transaction.
But looking at them individually, the half share in the Spanish property does not count against either of them as it is worth less than £40,000. Despite what HMRC say, there is no provision in this context aggregating the shares of the spouses. So the surcharge is not due on the purchase, despite the impression given by the amended guidance.
In fact the surcharge would not have been due even if Adam and Eve were buying the new property as an investment (or for a relative to live in) rather than as their residence as there is no other property counting against them.
Download our full guide including our review on the HMRC revised guidance note on trusts, companies and partnerships and inherited properties.
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This is intended for general information purposes only and does not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.
For professional advice on SDLT, please contact John Shallcross.