SDLT main home refund - tenanted

oz0707

Hi All

Any insight as to how the below scenario would play out and if still eligible to receive the SDLT refund at the end?

Currently residing in main residence. Intending to purchase 'forever' home with current sitting tenants. Plan to then sell current home and rent somewhere till tenants move from 'forever' home. Could the SDLT refund still be claimed if you don't then move straight into the new main residence and rent instead? Is there anywhere in the SDLT refund process where HMRC would even realise that the property is still tenanted?

Not trying to get one over on HMRC here but I can see how this could become a 'computer says no' moment.

user1977

As with most taxation these days, it's primarly done by self-assessment. So it's up to you to get it right rather than HMRC to tell you that you've got it wrong.

There is guidance here:

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09812

which suggests that what you're proposing can be acceptable even if you're not immediately taking occupation of the property.

theartfullodger

Why would tenants move out ?  Has current owner provided ALL paperwork to permit you to issue a valid s21?  When did they 1st move in? - if early enough any s21 would not be an option.

Odd current owner selling with tenants - usually higher price if vacant.  Hmmmnnnnn....

_Penny_Dreadful

oz0707 said:

Hi All

Any insight as to how the below scenario would play out and if still eligible to receive the SDLT refund at the end?

Currently residing in main residence. Intending to purchase 'forever' home with current sitting tenants. Plan to then sell current home and rent somewhere till tenants move from 'forever' home. Could the SDLT refund still be claimed if you don't then move straight into the new main residence and rent instead? Is there anywhere in the SDLT refund process where HMRC would even realise that the property is still tenanted?

Not trying to get one over on HMRC here but I can see how this could become a 'computer says no' moment.

The test for determining if the new property can be classified as your main residence in terms of SDLT is a question of intention, do you intend the dwelling to be your only or main residence? This is a question of intention at the time of purchase. For what purpose have you acquired the property? 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, or a short lease is in place before purchase, then this does not prevent the test from being met.

Assuming you meet the intention of purchasing the new property to become your main residence then you have 3 years between purchasing it to sell your current main residence to be eligible for a refund of the higher rate of SDLT to be refunded to you.

I don't think you could purchase the new property and allow the tenants to continue living there indefinitely and claim your intention is for the property to become your main residence.  I suspect that to satisfy HMRC you will need to start the eviction process almost straight away.

Buying a tenanted house isn't without risk.  You need to be confident that a) the tenants have an AST and not an old Rent Act tenancy, and b) that some piece of critical prescribed information isn't missing therefore making it nigh on impossible to issue a valid Section 21.

SDLT_Geek

Some excellent replies here by @user1977 @theartfullodger and @_Penny_Dreadful

_Penny_Dreadful

SDLT_Geek said:

Some excellent replies here by @user1977 @theartfullodger and @_Penny_Dreadful

Thank you

GDB2222

Some of the risk in buying a tenanted property can be circumvented by insisting that a new tenancy agreement is granted by the current landlord before exchanging contracts for the purchase of the property. This can then be done under supervision of the buyer, so that he can check that all the many i's are dotted and the t's crossed.  

theartfullodger

GDB2222 said:

Some of the risk in buying a tenanted property can be circumvented by insisting that a new tenancy agreement is granted by the current landlord before exchanging contracts for the purchase of the property. This can then be done under supervision of the buyer, so that he can check that all the many i's are dotted and the t's crossed.  

Yes, but how do you know it would be valid?  e.g. if a tenant has an AT or even a rent-act tenancy, simply signing a shiny new AST doesn't actually change the tenancy type: They would remain an AT or a rent-act tenancy.

Best regards to all

GDB2222

theartfullodger said:

GDB2222 said:

Some of the risk in buying a tenanted property can be circumvented by insisting that a new tenancy agreement is granted by the current landlord before exchanging contracts for the purchase of the property. This can then be done under supervision of the buyer, so that he can check that all the many i's are dotted and the t's crossed.  

Yes, but how do you know it would be valid?  e.g. if a tenant has an AT or even a rent-act tenancy, simply signing a shiny new AST doesn't actually change the tenancy type: They would remain an AT or a rent-act tenancy.

Best regards to all

That's absolutely true in theory, but fortunately pretty unlikely!

Certainly, check with the tenant how long they have been there. If they give a date before 1989, then don't touch the property with a bargepole. But, how likely is that? 

It would be very, very unlikely that a private tenancy was an AT, but I guess that's possible in theory. 

All this should be covered by pre-contract enquiries - so there's some comeback against the vendor if they lie. 

There's a case where someone tried it on with a protected tenant here: 
https://www.landlordlawblog.co.uk/2020/01/07/can-convert-protected-tenancy-ast-tenant-signs-ast-agreement/