Escape paying higher rates

Nobody wants to fork out an extra 3% in Stamp Duty Land Tax when buying an additional home. The ‘replacement of an only or main residence’ rules could be a way out of it, writes Zoopla’s John Shallcross

An issue that frequently causes confusion is whether the surcharge can be avoided on the basis that you are ‘replacing an only or main residence’ with your new purchase. If you are doing this, you will escape from the higher rates of SDLT – which can save you thousands of pounds.

But the replacement of only or main residence rules are tricky to understand with various conditions which depend on the circumstances.

It is important that:

1. The buyer (or sometimes a spouse) previously owned a home which was the buyer’s only or main residence, meaning they had actually lived there

2. This home has been sold or otherwise disposed of

3. The new property is intended as the buyer’s only or main residence. (ie. the buyer must intend to live there)

For a property to be a person’s “residence” means more than that they have lived there.

Scenario 1: Married couple returned from abroad

Question: My wife and I left England six years ago to work abroad. Before we left, we sold our home which had been our main residence up until that point, having lived in it for many years. We lived in overseas accommodation provided by our employers. We returned to

England in early 2018 and completed the purchase of our new main residence in October 2018. However, we each have other property interests and were told we had to pay the 3% SDLT surcharge. We paid the extra money, but is this correct and can we recover it?

Answer: Some of the original HMRC guidance suggested that you cannot rely on the replacement of only or main residence exception to escape the 3% surcharge here because you sold your previous home more than three years before your purchase.

However, the relevant threeyear rules did not apply to purchases completed by 26 November 2018. So you should have escaped the surcharge as you bought a new house in England intending it to be your only or main home and completed the purchase by 26 November 2018. You could apply to HMRC for a refund of the extra tax paid.

Scenario 2: Unmarried couple buying a home together

Question: My girlfriend and I are about to buy our first house together for us to live in as our only home. She has no other property interests, but I have several properties that I let out. I have been living in rented accommodation for the last two years since selling my previous home (which I had lived in up until then). Will we be hit with the surcharge because of my other property interests?

Answer: So long as you complete the purchase of your property within three years of having moved out of your previous home, you should not have to pay the surcharge. This is because of the application of the ‘three-year rules’ (which state you should have sold a previous main residence within the three years prior to the new purchase).

Scenario 3: About to get married and buy home together

Question: I am getting married in the next few weeks, then my new husband and I will buy our first home together and move in. It will be our only residence. We each have a number of let properties. He has just sold the house he has been living in for many years and which I have lived in with him for the last year. But I will keep the house that I lived in until last year and which I plan to continue to rent out for at least another two years. Do we have to pay the surcharge on the new house?

Answer: Yes. Because you were not married to each other when your intended sold his house, you cannot rely on his sale to get the benefit of the exception for the replacement of only or main residence. It sounds as if you might sell what used to be your only home within three years of the purchase of your first home together. You might then be able to claim the surcharge back.

Three-year rules apply in this scenario where you buy your new property before you sell your old one. So, as well as selling your old house within three years after the upcoming joint purchase, you would also need your upcoming joint purchase to be within three years of you last living in what had been your main home.