In the second of a two-part article, Peter Rayney examines some more thorny issues with the 3% SDLT surcharge.
3. Do I still qualify for the ‘replacement of main residence’ exemption if I buy my new home while I am still in the process of selling my existing one?
The legislation recognises that it is often difficult to sell an existing main residence before a new one is purchased. The buyer will initially have to pay the 3% SDLT surcharge. However, they can apply for this to be subsequently refunded provided their existing main residence is disposed within 36 months of completing the purchase of the ‘replacement’ home.
It is possible to apply for a refund online or using HMRC’s repayment request form. The time limit for making a refund application is the later of three months of the sale (or 12 months from the SDLT 1 filing date for the purchase of the ‘new’ home) (para 8(3), Sch 4ZA, FA 2003).
4. What is the situation where I have acquired a main residence with a separate ‘annex’ – is that subject to the 3% surcharge?
In certain cases, the additional 3% surcharge should not apply where a main residence (or ‘replacement’ main residence) is purchased together with a self-contained annex or outbuilding (which is effectively a separate dwelling). This exemption applies where:
- under a ‘just and reasonable apportionment’ of the total purchase price, at least two-thirds of it represents the amount ‘paid’ for the main residence; and
- the annex is part of the same building as the main residence or the outbuilding is within the grounds of the main residence.
This rule often enables so-called ‘granny annexes’ to be acquired with a main residence without incurring the 3% surcharge, although there are no specific conditions relating to the use of the annex or outbuilding.
It may also be possible to mitigate the SDLT liability by claiming multiple dwellings relief (MDR) under FA 2003, Sch 6B.
5. What if I am a ‘first-time’ buyer?
In most cases ‘first-time’ buyers (i.e. those who have never owned a residential property anywhere and are buying a main residence for the first time) should not have to worry about the 3% SDLT supplement. They will not pay any SDLT where the purchase price is below £300,000. Any amount exceeding £300,000 up to £500,000 is only subject to a 5% SDLT rate.
Normal SDLT rates apply for purchases costing more than £500,000, but the. ‘main residence’ exemption should normally be available.
6. Does the 3% surcharge apply where a company or trustees make the purchase?
Companies invariably have to pay the 3% surcharge when they purchase a major interest in a dwelling costing more than £40,000 (even if it is their ‘first’ purchase of a dwelling).
The position in relation to trusts depends on the nature of the trust itself.
Thus, in the case of a bare trust (which would include cases where a nominee is buying for someone else), the beneficial owner is deemed to acquire the dwelling (FA 2003, Sch 4ZA, para 10 (2)(3)). Consequently, the question of whether the 3% surcharge applies depends on the circumstances of the beneficial owner.
Similar rules apply for interest in possession trusts, where the beneficiary/life tenant is either allowed to occupy the dwelling for life or entitled to the income arising from that dwelling (FA 2003, Sch 4ZA, para 10 (1)(3)). In such cases, the beneficiary/life tenant is deemed to own the dwelling personally. Thus, if they would be liable to the additional 3% rate if they purchased the dwelling in their own name, then the trustees would pay the surcharge.
Trustees of discretionary trusts acquire are subject to the rules for ‘non-individual’ purchasers (i.e. the same as for companies). Thus, trustees are normally subject to the 3% surcharge (irrespective of the number of dwellings they hold).
Practical Tip:
The 3% surcharge should not apply to the purchase of a main residence (or the ‘replacement’ of a main residence).
