Tax

Juliette100

I am looking for some advice.  I just recently bought a new propoerty - 2nd home.  I will not be moving into this property until I sell my current home which is proving a challenge but I was advised by a friend to write to HMRC to make them aware of this to avoid any issues with main residence down the line.  I am happy to do this but wanted to check whether there was any value in doing this or not?  They are aware I am sure that I have purchased this property as my solicitor had to pay the 2nd property tax which I wired to her but this is a new situation for me so I thought I would ask the question and whether I should put pen to paper or whether this is a pointless exercise.  Thanks Juliette. 

SDLT_Geek

I wonder if you have had advice yet on stamp duty land tax and the 3% surcharge?

When you refer to the second property tax, I expect you are referring to the extra 3% which you would have paid by virtue of still owning your existing property when buying the new one. Were you advised on the conditions to be met if you are to be able to recover 3% surcharge when you sell the existing  property? One of the conditions is that at the date of the purchase of the new property, you have an intention to live in the new property as your only or main residence.

I see from your post that you do not intend to move straight in, so this could be a nuanced issue. Roughly when do you expect to move into the new property? What are you doing with it in the meanwhile? If you are renting it out then HMRC guidance indicates that you would fail to meet the condition of intending to live in the new property. 

But perhaps your friend is thinking about an entirely different issue, perhaps about making an election as to which of the two properties is your main residence for capital gains tax purposes. 

Juliette100

Thanks SDLT_Geek.   I shan't be renting the 2nd property but it will take me some time to get my finances to a level where I can decorate and get it to a standard where I can move in. I  paid the 2nd property 3% surcharge and have been advised I can recoup this sum if I sell my current residence within 3 years which I think I will but I think my friend felt it important to inform HMRC that this was not my main residence and that whilst I have purchased it that my intention was to refurb and sell property 1 before making it my main residence.    I suspect she feels that if in 3 years time there is a dispute as to which one is my main residence, having written to them in 2020 will be a good reference but I am not sure if that is required or she is being overly cautious. 

greatcrested

Writing to HMRC will achieve nothing, and may ope a can of worms.

As SDLT_Geek says, provided

* it is your intention to move as your main residence once you've redecoratade etc, and

* you are not letting the property out in the meantime

then you simply need to apply for the 3% additional SDLT in due course (within 3 years)

oldbikebloke

CGT
Whether there is any point nominating depends on when you are going to sell the old one, if soon, no need, if longer, then unless you nominate, which property is exposed to CGT is a "matter of fact" where you live and use the property you actually occupy. That said, it will cost you a stamp and some paper to write to HMRC, but it will achieve next to nothing in most cases. You have 2 years from the date you first have new combination of residences in which to make a "nomination" to HMRC in writing stating which of them is your main home for CGT purposes. 
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64485

if you intend to sell the old one within 9 months of physically moving out of it there is little point nominating it as your main residence since you would get full exemption on it for the entire ownership period anyway
if you fail to sell within 9 months the taxable gain is applied to the % of time you owned it when it was NOT your main residence. You also get a separate tax allowance exclusively against CGT (£12,300 in 20/21 terms).
So, if the sale is "slow" you would need to be experiencing tens of % of house price inflation per month for the tiny amount of time between a) date moved out + 9 months and b) date of sale to create a liable period which is not covered by relief and/or your allowance for you to have any tax to pay.

in respect of the new property, note use of the words: new combination of residences

Occupation of a property is an absolute requirement in order for it to qualify as a residence.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64465
In your case, you appear to have purchased the property with the clear intent of making a residence in the future.  That ticks the first box. The second box is where are and why are you living pending occupation and what is the new property doing. You should pass that test as well since it is not let, and having a "delay" whilst "redecorating" is a perfectly normal and accepted reason for not immediately occupying. There is however a 2 year time limit by which you must have occupied. During that 2 years, if the reasons are valid, you are given CGT relief anyway, whether you have nominated or not. Note carefully however, that the reason for non occupation must meet the conditions here:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65000
if it does, both houses are exempt
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65013

so if new is being redecorated, it is pointless nominating it if that work will complete within 2 years and (note and) it is no more than 9 months after moving out of old one before that old one sells 

the point of nomination is to do so where you expect to have two properties simultaneously for a "long" time. Short overlaps between purchase and sale don't really matter as the above rules deal with that anyway. 

Juliette100

Thanks for this. I am hoping to get into the new property within 24 months. With covid and work instability - equally the heating and electrics all need replacing - my current property remains my main residence and I really didn’t see the advantage of informing HMRC of this as I’ve not changed any bills, drs, voting activity and if required could prove I only have one main residence if I needed to. 

SDLT_Geek

Juliette100 said:

Thanks for this. I am hoping to get into the new property within 24 months. With covid and work instability - equally the heating and electrics all need replacing - my current property remains my main residence and I really didn’t see the advantage of informing HMRC of this as I’ve not changed any bills, drs, voting activity and if required could prove I only have one main residence if I needed to. 

I fear you may have missed the point.  If you wish to be entitled to recover the extra 3% SDLT paid on the new property, then one of the conditions is that on the date of completion of the purchase, you had an intention to live in the new property as your own or mainly residence (once works are done).  It would be advisable to have some evidence of that intention, so you can demonstrate that intention to HMRC if necessary.

oldbikebloke

SDLT_Geek said:

I fear you may have missed the point.  If you wish to be entitled to recover the extra 3% SDLT paid on the new property, then one of the conditions is that on the date of completion of the purchase, you had an intention to live in the new property as your own or mainly residence (once works are done).  It would be advisable to have some evidence of that intention, so you can demonstrate that intention to HMRC if necessary.

?
but as you know, a nomination is only relevant for CGT purposes, it is expressly ignored for SDLT in establishing which is main residence
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09812
"The rules do not allow an individual to nominate which dwelling is their main residence."
I agree a letter would document intent, but written words are not part of the test, rather it will be on the facts of the purchase and subsequent action (ie works prior to occupation)
"The intention test will not only be met if there is an intent to immediately occupy, if some works are to be undertaken before occupation commences, ...., then this does not prevent the test from being met."

as far as I see it, sending a letter will achieve nothing in the context of OP's plans as they stand. SDLT is not impacted by a nomination and CGT is not improved by it either.

without a nomination OP has
a) 24 months to complete the works and avoid CGT on the new; and
b) has 9 months after physically ending main residence occupation of the old in which to sell it free of CGT. Clearly therefore that clock can start anywhere up to 15 months after purchase of new (15+9 = 24!) 
c) no impact on SDLT

with a nomination OP has:
a) immediate exemption on the new, with no time limit for the works (provided they do actually occupy it at some point before it is sold, as occupation is an absolute requirement of it being a residence)
b) 9 months from date of purchase of new in which to sell the old or it will face CGT (so nominating closes the available gap between mth 9 and mth 15 for selling if there is no nomination)
c) no impact on SDLT

I agree if Op's plans go awry, and we take as read the new property is higher value than the old, then exposing the new to CGT because it has taken longer than 24 months to occupy as main residence would have a financial implication when that one is eventually sold. However, as we know it is unwise to second guess future tax rules as they do change, especially re CGT (loss of letting relief and extension of works overlap from 12 to 24 months, both wef April 2020 for example). By the time the new is sold in the future things could be very different. 

SDLT_Geek

I agree with oldbikebloke that writing to HMRC, or making an election for CGT, is unlikely to assist the SDLT position where OP might be asked to demonstrate OP's intention to live in the new property.  I was thinking that OP should assemble other forms of evidence; such as making it clear when seeking quotes for the intended works that these are being done to suit OP's personal circumstances, because OP will be moving in to the new property.
But perhaps OP's friend was thinking about capital gains tax and my obsession with SDLT is taking OP off track.

martindow

Juliette100 said:

Thanks for this. I am hoping to get into the new property within 24 months. With covid and work instability - equally the heating and electrics all need replacing

Why should this take 24 months?  Even with delays, replacing the heating and rewiring should not need to take more than a few months.  The quicker you can get the work done and move in the simpler it will be, I would think.

Juliette100

Largely financial.  My current job is at risk and with covid I’m taking it slow as finances are the challenge