Higher Rate Stamp Duty for purchase by married couples

appropriatelyrighthanded

My partner and I are jointly purchasing a property in England (whose value is above £40,000). I want to understand if this transaction will attract the “higher rate” of Stamp Duty of 3%. This question arises since my partner and I (i.e. same two people) jointly own another low-value property outside the UK.


I understand that the following two principles apply in this regard (both taken from HMRC Guidance Note titled Stamp Duty Land Tax: higher rates for purchases of additional residential properties dated 16 March 2016):

Principle 1: “3.1 … Condition C - the purchaser owns an interest in another dwelling which has a market value of £40,000 or more …”

Principle 2: “3.42 Where a transaction is entered into by joint purchasers the higher rates will apply if the transaction would be a higher rate transaction for any of the purchasers considered individually. So if there are two individual purchasers and Conditions A to D are all met for ]one of them only, the transaction will be charged at the higher rates.”


I believe the above two principles can be applied in two different manners in determining the valuation threshold for my current low-value non-UK property.

Case A: Since the Condition C will be applied to each one of my partner and myself individually, and since the value of our individual interest needs to be below the threshold of £40,000, the overall threshold for the value of the current non-UK property is £80,000 (i.e. 2 x £40,000). For instance, let us assume that the value of the current non-UK property is £78,000 (i.e. less than £80,000). Since my partner and I jointly own this property, each one of us has a 50% interest in the property valued at £39,000 (i.e. £78,000 divided by 2). When the Condition C from Principle 1 above is applied to each one of us individually, we both fail the condition since the value of our respective interest is less than the £40,000. Thus, neither one of us qualify for the levy of higher rate of Stamp Duty and hence our current UK purchase transaction will not attract this rate either.

Case B: My partner and I are both treated as a single “unit” since our ownership pattern for the current non-UK and the proposed UK transaction is the same. Hence, this unit is tested for Condition C from Principle 1 above and thus the threshold for the valuation of the current non-UK property is £40,000.

Which of Case A or Case B will apply? In other words, is the threshold value of my current non-UK property £80,000 or £40,000 for the purpose of application of the higher rate of Stamp Duty on my proposed UK purchase? Have I missed any relevant conditions, particularly one that causes my partner and I to be treated as a single unit?

anselld

In most SDLT examples it is the property which is the "unit" of measure, not the individual shares. Hence the 40k applies to the property as a whole and that is the threshold.

ie. .... Interest in (another dwelling with a value of 40,000 or more)
Not (interest in another dwelling ) with a value of 40,000 or more.

appropriatelyrighthanded

anselld wrote: »

In most SDLT examples it is the property which is the "unit" of measure, not the individual shares. Hence the 40k applies to the property as a whole and that is the threshold.

ie. .... Interest in (another dwelling with a value of 40,000 or more)
Not (interest in another dwelling ) with a value of 40,000 or more.

Thank you for your response anselld. That is an interesting point of view. But I believe HMRC does consider the value of the interest in the property and not the property itself. See below the relevant extract from the actual Draft Legislation from the Budget 2016 documents:

"3(4) Condition C is that at the end of the day that is the effective date of the transaction—
(a) the purchaser has a major interest in a dwelling other than the purchased dwelling,
(b) that interest has a market value of £40,000 or more, and
(c) that interest is not reversionary on a lease which has an unexpired term of more than 21 years."

(I'm quoting the draft legislation since I don't know where I can find the final legislation and the online Finance Act 2003 has not been updated.)

What are your thoughts on the above?

booksurr

i think you will need a written response from HMRC (no use phoning as call centre staff only deal in basics) and as you so obviously realise there are grey areas:

3.9 "The interest in the dwelling owned by, or treated as owned by the purchaser must have a value of £40,000 or more at the date of the transaction. The valuation is the market value of the interest owned, or treated as owned by the individual in the dwelling"

To me that implies that it is the owner not the dwelling which is measured.

Your complication is that your "joint" ownership is overseas, so:
"3.15 An interest in a dwelling outside of England, Wales and Northern Ireland is to be counted for the purposes of Condition C. Other legal systems will often have different land law concepts and it is a question of fact whether an interest owned by an individual is equivalent to a major interest and whether it is for a term of more than seven years and not subject to a lease of more than 21 years"

As you doubtless know, in UK law Joint Tenants do not own individual shares, they both own 100% of the property. However, as you also probably know married couples are treated for tax purposes as 50/50 splits of Joint Tenancies. It is only where there is Tenancy in Common that actual shares are used.

so how does your overseas legal system define your "joint" ownership: 50/50 or 100%?

the concept of the marriage "unit" is in respect of a married couple purchasing where only one of them clearly owns another property. In your case you both own the other property and so as you rightly ask the question is do you count as 78k or 39k x 2. That can only be down to how the overseas legal system regards each of your ownerships?

anselld

appropriatelyrighthanded wrote: »

What are your thoughts on the above?

Indeed it does seem to be worded as individual shares. That would make it at odds with other SDLT thresholds, for example you certainly could not avoid the 125k or 250k thresholds by claiming 50:50 Tenants In Common.

appropriatelyrighthanded

Thank you booksurr. I have a few follow-up questions and comments.

booksurr wrote: »

i think you will need a written response from HMRC (no use phoning as call centre staff only deal in basics) and as you so obviously realise there are grey areas:

How do I go about getting a written response from HMRC? Please share links to relevant resources.

booksurr wrote: »

3.9 "The interest in the dwelling owned by, or treated as owned by the purchaser must have a value of £40,000 or more at the date of the transaction. The valuation is the market value of the interest owned, or treated as owned by the individual in the dwelling"

To me that implies that it is the owner not the dwelling which is measured.

Yes, exactly my point. This view is also seconded by a plain reading of the Draft Legislation.

booksurr wrote: »

Your complication is that your "joint" ownership is overseas, so:
"3.15 An interest in a dwelling outside of England, Wales and Northern Ireland is to be counted for the purposes of Condition C. Other legal systems will often have different land law concepts and it is a question of fact whether an interest owned by an individual is equivalent to a major interest and whether it is for a term of more than seven years and not subject to a lease of more than 21 years"

As you doubtless know, in UK law Joint Tenants do not own individual shares, they both own 100% of the property. However, as you also probably know married couples are treated for tax purposes as 50/50 splits of Joint Tenancies. It is only where there is Tenancy in Common that actual shares are used.

so how does your overseas legal system define your "joint" ownership: 50/50 or 100%?

the concept of the marriage "unit" is in respect of a married couple purchasing where only one of them clearly owns another property. In your case you both own the other property and so as you rightly ask the question is do you count as 78k or 39k x 2. That can only be down to how the overseas legal system regards each of your ownerships?

I believe the legal system where my non-UK property is situated stipulates that joint ownership implies 50:50 value on each party. (I am in the process of getting this confirmed.)