SDLT on a New Main Residence

Question: I have a husband-and-wife client that are looking at helping their son out by buying a property and letting him live there rent free. The wife owns a property which is rented out and the couple reside in rented accommodation. The husband bought the property in his sole name so did not believe the 3% surcharge applied to him and filed a nil SDLT Return. Is this correct? If not, and they have to pay the surcharge can they dispose of the rental property to get the surcharge refunded as it was their only property?

When you are considering the higher rates of SDLT for married couples, the first thing to be aware of is that married couples are deemed one person for SDLT purposes, as per paragraph 9 schedule 4ZA Finance Act 2003.

 

This means that although the new property for their son is the husbands first property, due to rental in the wife’s name he is deemed to already own a property so the purchase would be considered a second property resulting in the 3% surcharge applying on that purchase.

 

Our clients first step would therefore be to amend the SDLT Return filed by their lawyers to report that the property purchase was in fact subject to the higher rates. The amendment window for SDLT Return’s is 12 months from the filing date – paragraph 6 schedule 10 FA 2003. Due to this error not being a minor error, the amendment will need to be reported in writing to HMRC. Further guidance on this can be found here: https://www.gov.uk/guidance/stamp-duty-land-tax-online-and-paper-returns#how-to-amend-a-return.

 

With regards to the SDLT being refunded if they were to dispose of the rental property, there are certain conditions that need to be met for this to qualify. These conditions are covered in Condition D of paragraph 3 Schedule 4ZA FA 2003. The main one being that they are replacing their main residence. Although this rental property was the couples only property, it is a common misconception that this then means it was their main residence.

 

Main residence for SDLT purposes is simply where the couple live as their home. It is not based on the private residence relief rules that apply for capital gains tax purposes. As the couple are disposing of a rental property and not their main residence, the relief from the higher rates of SDLT would not be available and therefore even if they do sell the 3% surcharge would remain chargeable.

 

Just for information purposes the full conditions of the relief that need to be met are (paragraph 3 (7) Schedule 4ZA Finance 2003):

 

“(a) on the effective date of the transaction (“the transaction concerned”) the purchaser intended the purchased dwelling to be the purchaser’s only or main residence,
(b)  in another land transaction whose effective date is during a permitted period, the purchaser or the purchaser’s spouse or civil partner disposes of a major interest in another dwelling (“the sold dwelling”),
(ba) immediately after the effective date of that other land transaction, neither the purchaser nor the purchaser’s spouse or civil partner has a major interest in the sold dwelling, and
(c)   at any time during the period of three years ending with the effective date of the transaction concerned the sold dwelling was the purchaser’s only or main residence.”