The first article (see Tax Insider Issue 131, November 2016) identified the rates of stamp duty land tax (SDLT) and the conditions under which the recently levied 3% additional SDLT rate applies to residential property purchased by non-married couples. Those conditions are:
(a) where an interest in a residential dwelling is purchased by an individual;
(b) the consideration for the transaction is £40,000 or more;
(c) the individual already has an interest in another residential dwelling with a market value of £40,000 or more; and
(d) the new purchase is not a replacement for the purchaser’s only or main residence.
Where two or more purchasers are involved in the purchase, each purchaser is considered separately. If either (or both) purchaser(s) satisfy the conditions (i.e. (a) to (d) above), the 3% charge is payable on the total purchase consideration of the buy-to-let.
Example 1: Joint purchase by married couple/co-habitees
Mike and Pat are married and live in their own home, which they jointly own. They decide to jointly purchase a buy-to-let.
Mike and Pat both satisfy the above four conditions, and hence the purchase is subject to the 3% additional rate.
If Mike and Pat were co-habitees (i.e. not married but living as husband and wife) in the same situation, the 3% additional charge would still apply to the purchase.
But consider the following two scenarios.
Married couple but one spouse only acts as purchaser
Suppose that David owns the home in which both he and his wife, Olivia, live. They intend to purchase a buy-to-let. To avoid the 3% additional charge, they decide that the purchase should be made by Olivia alone. David would then own one property, as would Olivia (i.e. Olivia would not be purchasing an additional property). Would they succeed in avoiding the 3% charge?
Unfortunately, HMRC have thought of this ruse. Accordingly, special legislation applies in this type of scenario. The 3% additional charge applies to the purchase of the buy-to-let if the 3% charge would have applied had the non-buying spouse (i.e. David) purchased the buy-to-let. Had David made the purchase he would then have owned two properties and the 3% charge would have applied on the purchase of the buy-to-let property.
But would the same consequences follow if David and Olivia had not been husband and wife, but co-habitees?
Co-habitees but one co-habitee only acts as purchaser
Suppose that David owns the home in which both he and his co-habitee, Olivia, live. They intend to purchase a buy-to-let. To avoid the 3% additional charge, they decide that the purchase should be made by Olivia alone. David would then own one property, as would Olivia. Would they succeed?
The special legislation discussed above applies only to married couples, not co-habitees. Thus, following the purchase of the buy-to-let, Olivia would own the buy-to-let and David would own the home; neither co-habitee would own two properties. The 3% charge would therefore not apply.
This is, perhaps, one of the few occasions where, for tax purposes, co-habitees are arguably treated ‘better‘ (i.e. more favourably) than their married counterparts.
Only or main residence replacement
Irrespective of the number of properties owned, purchasers avoid the 3% charge where the property purchased is regarded as a replacement residence for the purchasers’ only or main residence (as condition (d) above would not be satisfied).
Example 2: Married couple/co-habitees home purchase
A married couple, Terry and Mabel, jointly own their own home, and jointly own a buy–to-let.
Terry and Mabel sell their home, and jointly purchase a new home.
Although after the purchase of the new home they own two properties, as they have replaced their original home with a new home the 3% charge does not apply.
If Terry and Mabel had been co-habitees, the same consequences would follow.
However, absence of joint ownership of the main home may prove a problem in similar circumstances for co-habitees.
Example 3: Co-habitees home purchase
Terry owns the home in which he and his co-habitee, Mabel, live but they jointly own a buy-to-let.
Terry sells their home, but they jointly purchase the new home.
The 3% additional charge applies to the purchase.
The reason for the 3% charge in Example 3 is that to satisfy the replacement residence condition requires each of the purchasers to satisfy the condition which, in turn, requires that each purchaser has, prior to the purchase, sold a beneficial interest in a former home. Mabel owned no such interest to sell.
However, had Terry and Mabel been married (not just co-habitees) the 3% charge would not have applied (as it is only necessary, for a married couple, that one of the spouses has sold an interest in a previous home).
Practical Tip:
If the 3% additional charge is to be avoided on the replacement of a residence, a joint purchase may prove problematic for co-habitees.
