One year on from the hike in SDLT on additional properties: Common questions #2
1 April 2017 marks a year since the introduction of the extra 3% stamp duty land tax (SDLT) on additional properties and purchases by companies. It is therefore a year since we saw a rush in transactions completing to avoid the extra SDLT that would have been payable had completion been after 31 March 2016. One year on, are we any wiser on how the surcharge works and what exceptions are available?
There is HMRC guidance which was improved in November 2016 but if you call the HMRC SDLT Helpline you will be greeted by a recorded message saying straight away that if you are calling about “buying an additional residential property” you should search on gov.uk and “our advisers cannot provide any further information” and can only refer callers to the guidance. The anecdotal evidence is that even when HMRC do give answers on the 3% surcharge, they often get it wrong, as described in my blog here.
John Shallcross, Blake Morgan's stamp duty land tax specialist, has written some Q&As which may help, if you find yourself asking whether you need to pay the surcharge. Read previous questions John has answered in Common questions #1 here.
1. Downsizing to upsize
My spouse and I bought a property together in March 2016 and we both live in it as our only home. We each already owned properties which we currently rent out. We plan to sell our home (the property we own jointly) and move into one of our rental properties to put us in a good position to buy a property in a more suitable location. When we eventually buy a more suitable property (hopefully within the next 12 months) will we be subject to the higher rates of SDLT?
There is a 36 month grace period for surcharge purposes between selling your previous main residence (where you actually live) and buying your new one. Moving in to a property you already own in between should not "break" this.
But transferring shares between you in the property you already own when you live in it (or intend to live in it) could have that "breaking" effect. It comes down to the meaning of a "major interest" which is unclear, but from HMRC guidance it appears that they consider a share in a property can (at least sometimes!) be a major interest.
2. Putting property in to a company
I own a number of properties including the house where I have lived for many years. My present home is worth £300,000.
(a) Will the 3% surcharge be payable if I sell my current home to a limited company in which I hold most of the shares?
(b) If afterwards I buy another property for £1M as my main home, will I need to pay the surcharge given that I will have already sold my previous main residence to the limited company?
(a) A limited company nearly always pays the surcharge if the price of the property is £40K or more, even if it owns no other properties. The SDLT will be based on the market value (if higher than the price paid) if the company is connected to the seller. So in this case (assuming the price the company pays is not more than £300,000) the company will pay “ordinary” SDLT of £5,000 and the surcharge of £9,000 giving a total of £14,000.
(b) Having sold your residence (where you actually lived) it seems in principle that if you buy a replacement residence (that is somewhere you will actually live) the surcharge would not apply, even if you own other properties. So on your £1M purchase there is ordinary SDLT of £43,750 but the £30,000 surcharge does not apply.
But there will be details to check, such as any joint buyers, or spouses / civil partners who might be treated as joint buyers for surcharge purposes. The anti-avoidance rules should also be considered.
3. Buying for children
Can I avoid the 3% surcharge by buying a house to let out as an investment in my child's name? I am already a homeowner and don't want to sell my main residence.
Not if your child is under 18. Nor if you are just buying "in the name of" an adult child if you are to have an underlying share in the value of the property.
4. I already own a flat above a shop
For many years I have owned a shop with a flat above. The flat is self-contained and is let out on an assured shorthold tenancy. The flat is worth well over £40,000. I am now buying a house to live in as my only residence. I am keeping the shop and flat but there are no other property interests counting against me.
I have heard that the purchase of a shop and flat together counts as “mixed” and will escape the surcharge. Does this mean that the flat will not count against me when I buy the house?
Unfortunately the flat will count against you for surcharge purposes. There is a rule that purchases of "mixed" properties escape the surcharge. However, this does not apply in the same way to self-contained dwellings already owned, even if held with non-residential property like a shop.
You should consider though whether the exception from the surcharge for the replacement of an only or main residence could apply to you. For a start, have you ever owned a property which you lived in as your only or main residence and sold? Even very many years ago? Or perhaps one that a spouse or civil partner owned and sold but which you lived in?
5. Buy to lets in exchange for a main residence
I currently own three properties that I rent out but I do not own the house where I live. I have two of my properties currently for sale and the third will be for sale shortly. All are worth well over £40,000. I am looking to buy just one residence for myself to live in after all three flats have sold.
My question is that if I sell two of my let properties and then buy the house before I have sold the third, will I be liable for the extra SDLT (as I have replaced a property that I have sold) and if I am liable, will I get that 3% SDLT refunded once my third property has sold?
The surcharge will be due if you have not sold the third by the time of your purchase, unless your property owning history means the replacement exception applies to you. Let us start with the two properties that you will sell first. Did you live in either of them as your main or only residence at some point? If so, the exception from the surcharge might well apply to you.
Or is there another property you used to own and live in that you sold?
For a prior sale it does not matter (for a purchase of a property to live in completing by 27 November 2018) how long ago the sale was, so long as you did not buy a property afterwards, intending to live in it.
Failing that, it sounds unlikely that you could get back the surcharge after you sell the third let property, unless you had lived in it in at some point within the three years leading up to the purchase of the new place. The three year rules already apply where the purchase of a main residence is before the sale of a former residence.
For professional advice on SDLT, please contact John Shallcross.