Mark McLaughlin looks at the exception from higher rate stamp duty land tax for the replacement of an individual’s only or main home.
Moving house can be stressful, not to mention costly. A major cost of purchase can be stamp duty land tax (SDLT) (or equivalents in Scotland and Wales, not considered here).
Extra SDLT?
Care is needed to distinguish between a replacement dwelling and an additional dwelling; the latter is generally liable to higher SDLT rates (if bought for £40,000 or more and is not subject to a lease with more than 21 years left to run), which are 3% higher than standard SDLT rates.
Is it a replacement?
However, the purchase of a qualifying replacement dwelling is not liable to the additional SDLT (FA 2003, Sch 4ZA, paras 3(6), (7)).
But what is a ‘replacement’?
(1) ‘Old’ residence sold before (or on same day as) ‘new’ residence
For the ‘new’ dwelling to be an eligible replacement for the purchaser’s ‘old’ dwelling, certain conditions must be satisfied where the old dwelling was sold first (or at the same time), which are paraphrased below.
-
When purchasing the new property, the purchaser intends it to be their only or main residence.
-
In the three years before purchasing the new property, the purchaser or spouse (or civil partner) at the time must have disposed of a major interest in another dwelling.
-
Immediately after disposing of the old property, neither the purchaser nor the purchaser’s spouse (or civil partner) had a major interest in it.
-
The purchaser must have lived in the old property as their only or main residence at some point in the three years before purchasing the new property.
-
At no point between selling the old property and buying the new property had the purchaser or spouse (or civil partner) acquired a major interest in another dwelling with the intention of living in it as their main or only residence.
(2) ‘Old’ residence sold after ‘new’ residence
Furthermore, the ‘new’ property can be treated as a replacement if the ‘old’ property was sold afterwards, broadly where the following conditions are satisfied:
-
Upon purchase, the individual intended living in the ‘new’ property as their only or main residence.
-
In the three years after purchasing the ‘new’ property, the purchaser or spouse (or civil partner) disposes of a major interest in the ‘old’ property.
-
Immediately after disposing of the ‘old’ property, neither the purchaser nor the purchaser’s spouse (or civil partner) had a major interest in the ‘old’ property.
-
The purchaser lived in the ‘old’ property as their only or main residence at some point in the three years before purchasing the new property.
In ‘exceptional circumstances’, HM Revenue and Customs (HMRC) may extend the three-year period at its discretion if a valid application is made (see HMRC’s Stamp Duty Land Tax Manual at SDLTM09807).
Claiming a refund
If the old property is still owned when the new property is purchased, the higher rates of SDLT initially apply.
However, the SDLT return can subsequently be amended within statutory time limits, and the extra 3% can be refunded if the above conditions are subsequently met (see www.gov.uk/guidance/stamp-duty-land-tax-online-returns).
Practical tip
Renting a property while replacing the ‘old’ dwelling is ignored for these purposes if the tenancy is not granted for a term of more than seven years (see SDLTM09800).
