Second Property - Stamp Duty Land Tax

mither_2

A family friend already owns one rental property which has had for a number of years. 
Until recently he lived in London but has now moved to the North West to be closer to his family. 
He has kept the London flat and is renting it out. 
As I understand it if he had sold that property he would not be liable for additional 3% SDLT because he was changing his primary residence. 
However, as he is retaining this property and buying a new residential property I would assume that he is liable for the 3% additional SDLT.
I thought the way the system worked was that when he acquired his new property his solicitors would require him to deposit with them the monies for the SDLT on the new residential property taking into account that he already owned a property?
I know that there is a SDLT holiday up until 31/03/2021 but he would still be liable for the 3%?      

davidmcn

mither_2 said:

A family friend already owns one rental property which has had for a number of years. 
Until recently he lived in London but has now moved to the North West to be closer to his family. 
He has kept the London flat and is renting it out. 
As I understand it if he had sold that property he would not be liable for additional 3% SDLT because he was changing his primary residence. 
However, as he is retaining this property and buying a new residential property I would assume that he is liable for the 3% additional SDLT.

The concession for replacing your primary residence only works if you are selling one primary residence and buying another one. You haven't told us that he owns his current primary residence and is selling it - is he?

AdrianC

He owns this London flat, but has been renting it out... Has he ever lived in it? When did he move out?
He has now bought a primary residence. He owned one property. Now he owns two. He pays +3%. The holiday means that the 3% is added to (probably) £0 basic SDLT.

IF the London flat was genuinely his primary residence before he moved away, then he can reclaim the +3% if it's sold within three years of buying the other property.

No, it's not held by solicitors - it's paid to HMRC, then (if eligible) reclaimed from HMRC.

mither_2

It was his primary residence therefore I think he can reclaim it within three years but he would still have had to pay it up front right? 
I thought it would be held by his solicitors and then paid by them to HMRC when the sale went through?   

SDLT_Geek

The extra 3% SDLT gets paid to HMRC on the completion of the purchase of the new home.  It can then be reclaimed if the old home is sold within three years.  That is the case even though there is another rental property which the family friend has owned many years.

mither_2

If I'm correct then he couldn't have bought the new home without making this 3%? 
If he didn't tell his solicitors anyway then presumably it would show up on a register somewhere and be picked up by his solicitors? 

davidmcn

mither_2 said:

If I'm correct then he couldn't have bought the new home without making this 3%? 
If he didn't tell his solicitors anyway then presumably it would show up on a register somewhere and be picked up by his solicitors? 

Solicitor don't have ready access to a master list of every property registered in the names of their clients (though obviously they may be aware if they have had previous dealings with the other property).

If it would be picked up by anybody it would be HMRC. Like any self-assessed tax, it's up to the tax payer to make the correct declaration in the first place, or risk facing consequences at a future date.

AdrianC

mither_2 said:
It was his primary residence...

Until when?
Did he move out purely in order to relocate?
Or did he move out, rent it, and then some time later get around to relocating?

mither_2 said:

If I'm correct then he couldn't have bought the new home without making this 3%? 
If he didn't tell his solicitors anyway then presumably it would show up on a register somewhere and be picked up by his solicitors? 

His solicitors will ask/will have asked. The SDLT1 form explicitly asks. If they don't ask, they can't complete the form.
https://www.gov.uk/government/publications/sdlt-guide-for-completing-paper-sdlt1-return/guide-for-completing-paper-sdlt1-returns
If he "didn't tell them", then he lied on a tax return, and that's never the smartest plan.

mither_2

Thanks for the useful answer. You've confirmed my understanding. I can't work out how he doesn't think any payment would be due.   

SDLT_Geek

He probably thought he was "replacing his main residence".  Perhaps he did not realise that one of the conditions for this is a sale (or other complete disposal) of an old home.

mither_2

SDLT_Geek said:

He probably thought he was "replacing his main residence".  Perhaps he did not realise that one of the conditions for this is a sale (or other complete disposal) of an old home.

But I would still assume that he would need to pay the extra 3% (which he couldn't do since he's letting it out) and then reclaim it rather than just not paying the 3% at all? Seems a bit strange.