Sold main residence but own second home

you_lazy_git

We have sold our main residence (17 months ago) and are about to replace it.  However, we also own a second property, which we bought before selling our main residence so paid the 3% surcharge. Now we are being asked by our solicitor to pay the 3% surcharge on the new property. 

I believe we have 3 years to replace our main residence so I have told the solicitor to treat it as exempt from this surcharge. 

Am I correct in my belief? 

Any advice would be appreciated!

SDLT_Geek

you_lazy_git said:

We have sold our main residence (17 months ago) and are about to replace it.  However, we also own a second property, which we bought before selling our main residence so paid the 3% surcharge. Now we are being asked by our solicitor to pay the 3% surcharge on the new property. 

I believe we have 3 years to replace our main residence so I have told the solicitor to treat it as exempt from this surcharge. 

Am I correct in my belief? 

Any advice would be appreciated!

I expect the property you are buying is in England, so the relevant tax is stamp duty land tax?  If so, yes, there is three years to complete the purchase of the new home.  There is guidance on the conditions to meet to escape the 3% surcharge here: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800

you_lazy_git

Yes, sorry for not making that clearer.

I have been through the link you sent and the point my solicitor is bringing up is:

A purchase of a major interest in a single dwelling by an individual will be a “higher rates transaction” and the higher rates of SDLT will apply to the purchase, if at the end of the day of purchase each of conditions A to D are met.

• Condition A - the chargeable consideration is £40,000 or more THIS WILL BE MET
• Condition B - the major interest purchased is not subject to a lease which has more than 21 years to run on the date of purchase THIS WILL BE MET
• Condition C - the purchaser owns a major interest (with a market value of £40,000 or more) in another dwelling which is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling, and THIS WILL BE MET
• Condition D - the dwelling being purchased is not replacing the purchaser’s only or main residence. THIS IS THE ONE WE HAVE AN ISSUE WITH

I have gone back and quoted from the regulations, stating we meet all 5 points to meet Conditin

Old main residence sold before or on the same day as the new` main residence is purchased

In this first situation Condition D will be met unless all of the following 5 conditions are met: -

1. At the time of purchase of the new property, the purchaser intends to live in the new property as the purchaser’s only or main residence [Para 3(6) (a)] - YES
2. In the three-year period preceding the purchase of the new property, the purchaser (or the purchaser’s spouse or civil partner at the time) must have disposed of a major interest in another dwelling (the “old property”) [Para 3(6) (b)]. Leaving employer provided accommodation or a parental home does not count as a disposal of a major interest in a previous main residence for the purposes of Condition D. This is the three-year disposal rule. - YES
3. Immediately after the disposal of the old property, neither the purchaser nor the purchaser’s spouse or civil partner had a major interest in the old property. - YES
4. The purchaser must have lived in the old property as the purchaser’s only or main residence at some point in the three-year period preceding the date of the purchase of the new property [Para 3(6) (c)]. This is the three-year occupation rule. - YES
5. At no point between selling the old property and buying the new property had the purchaser (or the purchaser’s spouse or civil partner) acquired a major interest in another dwelling with the intention of the purchaser living in it as the purchaser’s main or only residence [Para 3(6) (d)]. - YES

The issue they have is they believe the second home is now our main residence as we currently live in it.  I do not believe this matters as is has never been designated our main residence and we have never planned to make it so.

Are we incorrect in assuming this?  There is nothing in the regulations about where you live in the three year period.

Thanks in advance.

SDLT_Geek

you_lazy_git said:

Yes, sorry for not making that clearer.

I have been through the link you sent and the point my solicitor is bringing up is:

A purchase of a major interest in a single dwelling by an individual will be a “higher rates transaction” and the higher rates of SDLT will apply to the purchase, if at the end of the day of purchase each of conditions A to D are met.

• Condition A - the chargeable consideration is £40,000 or more THIS WILL BE MET
• Condition B - the major interest purchased is not subject to a lease which has more than 21 years to run on the date of purchase THIS WILL BE MET
• Condition C - the purchaser owns a major interest (with a market value of £40,000 or more) in another dwelling which is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling, and THIS WILL BE MET
• Condition D - the dwelling being purchased is not replacing the purchaser’s only or main residence. THIS IS THE ONE WE HAVE AN ISSUE WITH

I have gone back and quoted from the regulations, stating we meet all 5 points to meet Conditin

Old main residence sold before or on the same day as the new` main residence is purchased

In this first situation Condition D will be met unless all of the following 5 conditions are met: -

1. At the time of purchase of the new property, the purchaser intends to live in the new property as the purchaser’s only or main residence [Para 3(6) (a)] - YES
2. In the three-year period preceding the purchase of the new property, the purchaser (or the purchaser’s spouse or civil partner at the time) must have disposed of a major interest in another dwelling (the “old property”) [Para 3(6) (b)]. Leaving employer provided accommodation or a parental home does not count as a disposal of a major interest in a previous main residence for the purposes of Condition D. This is the three-year disposal rule. - YES
3. Immediately after the disposal of the old property, neither the purchaser nor the purchaser’s spouse or civil partner had a major interest in the old property. - YES
4. The purchaser must have lived in the old property as the purchaser’s only or main residence at some point in the three-year period preceding the date of the purchase of the new property [Para 3(6) (c)]. This is the three-year occupation rule. - YES
5. At no point between selling the old property and buying the new property had the purchaser (or the purchaser’s spouse or civil partner) acquired a major interest in another dwelling with the intention of the purchaser living in it as the purchaser’s main or only residence [Para 3(6) (d)]. - YES

The issue they have is they believe the second home is now our main residence as we currently live in it.  I do not believe this matters as is has never been designated our main residence and we have never planned to make it so.
You are right, this does not matter.

Are we incorrect in assuming this?  

No.

There is nothing in the regulations about where you live in the three year period.
Correct.
Thanks in advance.

Notes in bold above.  You have researched this well.

propertyrental

Surely if you have 3 years from selling your 'main residence' to buying a replacement 'main residence', you must have been living elsewhere for those (up to) 3 years.

So effectively that place was your main residence for that period - and it might have been your '2nd property ' or somewhere else.

But since HMRC allow you to live elsewhere for up to 3 years, it doesn't matter where that was?

Note I'm not a SDLT expert like SDLT_Geek, just thinking it through logically.

you_lazy_git

Thanks both for you comments. I was fairly confident but my solicitor is very negative so I wanted to make sure I was reading it wrong!

SDLT_Geek

you_lazy_git said:

Thanks both for you comments. I was fairly confident but my solicitor is very negative so I wanted to make sure I was reading it wrong!

It might be that your solicitor has been misled by the loose and sloppy introductory level guidance from HMRC here: https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

stig

Can’t you point out to your solicitor that condition 5 only references a property BOUGHT between selling your old main residence and buying your new main residence. You owned the second property before this, so you meet condition 5. This means you meet all five conditions, which means you are deemed not to meet condition D, which means the  new residence purchase isn’t a higher rate transaction. If this doesn’t do it, get them to walk you through the statutory position and show where they disagree i.e.

the transaction is a higher rates transaction unless

You fail one of conditions A to D directly OR
you’re deemed not to meet condition D by meeting all of the 5 conditions in para 3(6)


and @SDLT_Geek is right, the gov.uk level guidance is often contradictory and misleading - unfortunately legislation is often too complex in the fine detail for all the nuances to be accurately covered.

you_lazy_git

Yes, I will do that thanks.

The funny thing about the solicitor is that they have represented us for the purchase of the second home, sale of the main residence and now the purchase of our new main residence. It shouldn't be hard to see that we are not liable for the higher rate SDLT!

I think this is due to them being risk adverse and not wanting any liability in case they get it wrong.  Seems to be the way of the world at the moment unfortunately.

km1500

Q. What if the home I am buying will be my main residence?

If the home you are buying replaces your main residence, you will not be liable for the 3% surcharge, even if you own an additional property/properties (such as a second home or a flat you rent out) at the same time. This example is from the government's consultation document:

"A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply."

But replacing your main residence means that the property that was previously your main residence will need to be disposed of (e.g., SOLD or GIFTED). 

If you are moving out of rented accommodation or, say, your parents' home, this will NOT count as disposing of your main residence as you are not an owner or part-owner of that property.  

https://www.zoopla.co.uk/discover/buying/q-a-new-3-stamp-duty-surcharges/

sheramber

Do you intend to retain the second property after moving to the new house or was it a stepping stone between selling and buying?

From SDLT_ Geek's link above

Example 4

Ms G currently owns two buy-to-let properties, which she has owned for a number of years. She sold her previous main residence six months ago and moved temporarily into one of her buy-to-let properties, whilst looking for a new main residence. She buys a new main residence, moves into it and rents out her buy-to-let property to tenants again.

Ms G will be treated as replacing her main residence if the property she sold six months ago was her only or main residence and she lived in it as her only or main residence at some time in the past 3 years. The fact that she lived in one of her buy-to-let properties in the interim period does not affect this.