Stamp duty query about owning rental property

stephanie_says

Hello, I am buying a house on my own following a divorce. My husband is buying me out of our shared home so I am effectively selling my main residence, my name will be removed from the deeds before I complete my purchase. However, I do I own a flat which has tenants in it.  I have spoken to several solicitors and estate agents who have all told me that I am not liable for the higher rate of Stamp Duty applicable to second home owners as this would only apply if the flat was my main residence.  Many people have told me this over the phone or in e-mails (some of whom are basing it on personal experience because they own rental properties themselves), but the official contract from the solicitor I am using for the conveyancing says "We are not qualified and do not provide advice in relation to SDLT...The payment of the correct amount of tax remains your liability and it will be your obligation to deal with any queries in this regard which may be raised by HMRC".  Can anyone point me to a source which clearly states that the higher rate does not apply to owners of rental properties when they are buying their main residence? I couldn't afford to pay the higher rate, so if it did apply I would have to sell the flat, which I don't want to do as the tenants want to stay there and it would delay completion which will be inconvenient for the vendors of the house I want to purchase (not to mention worse for me and my husband who would just like to get this over with asap). I'd be very grateful for any advice!

SDLT_Geek

stephanie_says said:

Hello, I am buying a house on my own following a divorce. My husband is buying me out of our shared home so I am effectively selling my main residence, my name will be removed from the deeds before I complete my purchase. However, I do I own a flat which has tenants in it. 

I have spoken to several solicitors and estate agents who have all told me that I am not liable for the higher rate of Stamp Duty applicable to second home owners as this would only apply if the flat was my main residence. 
This is to misunderstand the rules, the flat can "count against you" for the 3% surcharge even though you have never lived in it.

Many people have told me this over the phone or in e-mails (some of whom are basing it on personal experience because they own rental properties themselves), but the official contract from the solicitor I am using for the conveyancing says "We are not qualified and do not provide advice in relation to SDLT...The payment of the correct amount of tax remains your liability and it will be your obligation to deal with any queries in this regard which may be raised by HMRC". 

Can anyone point me to a source which clearly states that the higher rate does not apply to owners of rental properties when they are buying their main residence?
This is not what the rules say.  It is not enough that you are buying a property to live in as your main residence.  There are extra conditions to meet as explained below.

I couldn't afford to pay the higher rate, so if it did apply I would have to sell the flat, which I don't want to do as the tenants want to stay there and it would delay completion which will be inconvenient for the vendors of the house I want to purchase (not to mention worse for me and my husband who would just like to get this over with asap). I'd be very grateful for any advice!

The rules you need to get to grips with are the ones about "replacement of main residence".  You should work through the five conditions in SDLTM09800.  https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800 A key is that you have disposed of all of your interest in a property which you lived in as your only or main residence within three years of your purchase.

stephanie_says

Thank you, I hadn't seen that document, that is very helpful!  Am I right to understand that provided I meet those 5 conditions which all relate to my 'old main residence' i.e. my current home, it doesn't matter that I also own a flat? 
If I've understood them correctly, I do meet the 5 criteria:
1. I intend to live in the new property as my main residence from the date of purchase - definitely!
2. I will have disposed of my interest in another dwelling in the three-year period before the purchase - my husband will have bought me out of our current home.
3. Neither I nor my spouse will have a major interest in the old property - this is correct because at the time of disposal / purchase I will no longer be married.
4. I have lived in the old property as my main residence in the three year period preceding the date of the new property - yes, I live here now.
5. I will not acquire a major interest in another another dwelling with the intention of living in it between disposing of the old property and buying the new one.
So in theory, I could own multiple rental properties and still wouldn't be liable for higher rate SDLT provided I met the above conditions?
I have read that the SDLT 3% surcharge applies to landlords buying buy-to-let properties, but that's not what I'm doing, I'm buying a main residence and already own a rental property.  

SDLT_Geek

Yes, it sounds as if you meet all five conditions for the "replacement exception".  On that basis, the 3% extra should not apply, even though you own another property.

Just to make sure that an odd trap does not apply, am I right in thinking that your husband will carry on living in the present home you share?

stephanie_says

SDLT_Geek said:

Just to make sure that an odd trap does not apply, am I right in thinking that your husband will carry on living in the present home you share?

Thank you again! Yes, my husband (or by then, ex-husband) will carry on living in our current home after I move out.

SDLT_Geek

Good, so the trap I was thinking of should not apply.

Ricky116

Um, I am in a similar situation and thought I had to pay 3% SDLT. 
I have a main residence than I plan to let when I complete on my purchase (hence my 'main' residence will move). Does that mean I am in the same position as SDLT_Geek with an (old) BTL property and a (new) main residence = no SDLT?

SDLT_Geek

Ricky116 said:

Um, I am in a similar situation and thought I had to pay 3% SDLT. 
I have a main residence than I plan to let when I complete on my purchase (hence my 'main' residence will move). Does that mean I am in the same position as SDLT_Geek with an (old) BTL property and a (new) main residence = no SDLT?

You should start your own thread really.  Your position is different, as you are retaining ownership of your old home.  So the extra 3% SDLT will apply.

Slithery

No, as you're not disposing of your main residence - you're keeping it to use as a BtL.

The additional 3% will be due.

Ricky116

I have read that the SDLT 3% surcharge applies to landlords buying buy-to-let properties, but that's not what I'm doing, I'm buying a main residence and already own a rental property.

Do you have a source for this? Thanks!

SDLT_Geek

Ricky116 said:

Do you have a source for this? Thanks!

The HMRC guidance in their manual explains it, especially SDLTM09800.  https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800   In your case the "replacement exception" does not apply because you are retaining ownership of your old home.