Stamp Duty Additional 3% Surcharge Applicable?

Charlie1985

Hi looking for some guidance here please. I currently own a buy to let property (purchased in 2016) in my sole name. I then also purchased our main residence in 2019 as a concessionary purchase from my parents and we have lived here since. I am married and both properties were bought in my sole name due to my wife having a poor credit rating at that time (married since 2012). Note my wife has no properties in her name.

Now that my wife’s credit rating is somewhat back on track we have now been looking to move to a larger home which will be our new main residence. In order to fund this however we will need to sell our current main residence (planning for its sale to be completed before or on same day as our new onward purchase). We plan to keep our buy to let in the background.

The rules if the 3% surcharge will be applicable to us appear to be quite confusing online. I contacted a solicitor and they told me because I will have an interest in another property (the buy to let) the 3% surcharge would apply when I purchase my next main residence.

I have read on Google and the advice there is different to what this solicitor is telling me. 

My understanding is If you own buy to lets but then sell your main residence you have 3 years to purchase another main residence otherwise the 3% surcharge will apply to your next main residence purchase.

Grateful if we can get some advice/clarity on this matter please, particularly if the solicitor advice is correct:

1. Would we need to pay the 3% surcharge considering we are replacing our main residence?

2. Has anyone had any similar experiences to this and what were your outcomes? 

3. Is my understanding correct here or have I totally misunderstood and our solicitor is correct?

4. If I am correct how best do I convey this to my solicitor? Any formal guidance docs I can refer them to?  Can anyone recommend a good solicitor that has done this before?

If we need to pay the additional 3% surcharge we will need to think twice about moving as we simply won’t be able to afford that additional tax.

Any guidance advice would be really appreciated on this matter. Many thanks in advance.

Kind Regards
Charlie

anselld

You are replacing your main residence so the 3% surcharge does not apply.

SDLT_Geek

Charlie1985 said:

Hi looking for some guidance here please. I currently own a buy to let property (purchased in 2016) in my sole name. I then also purchased our main residence in 2019 as a concessionary purchase from my parents and we have lived here since. I am married and both properties were bought in my sole name due to my wife having a poor credit rating at that time (married since 2012). Note my wife has no properties in her name.

Now that my wife’s credit rating is somewhat back on track we have now been looking to move to a larger home which will be our new main residence. In order to fund this however we will need to sell our current main residence (planning for its sale to be completed before or on same day as our new onward purchase). We plan to keep our buy to let in the background.

The rules if the 3% surcharge will be applicable to us appear to be quite confusing online. I contacted a solicitor and they told me because I will have an interest in another property (the buy to let) the 3% surcharge would apply when I purchase my next main residence.

I have read on Google and the advice there is different to what this solicitor is telling me. 

My understanding is If you own buy to lets but then sell your main residence you have 3 years to purchase another main residence otherwise the 3% surcharge will apply to your next main residence purchase.

Grateful if we can get some advice/clarity on this matter please, particularly if the solicitor advice is correct:

1. Would we need to pay the 3% surcharge considering we are replacing our main residence?

2. Has anyone had any similar experiences to this and what were your outcomes? 

3. Is my understanding correct here or have I totally misunderstood and our solicitor is correct?

4. If I am correct how best do I convey this to my solicitor? Any formal guidance docs I can refer them to?  Can anyone recommend a good solicitor that has done this before?

If we need to pay the additional 3% surcharge we will need to think twice about moving as we simply won’t be able to afford that additional tax.

Any guidance advice would be really appreciated on this matter. Many thanks in advance.

Kind Regards
Charlie

The key to escaping the extra 3% stamp duty land tax through "replacing" your main residence is that you meet the conditions set out in the legislation, including selling (or otherwise disposing of) your main residence.  Here you seem to meet the conditions.

You can refer your solicitor to the set of five conditions in this guidance and explain how you meet each of them.  https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800.

That will mean the 3% extra is not due on your purchase.  I would expect your solicitor to understand this once referred to the guidance.

EssexHebridean

An easy way of double checking through this for yourself would be to use the SDLT Calculator on the HMRC site - it's very straightforward to use, and allows you to select that your transaction will be replacing your main residence - that should then show you the correct level of SDLT payable. You would then be able to save the calculation and forward that to your solicitor so they can see your calculations, and that should clarify things. 

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#!/intro

SDLT_Geek

EssexHebridean said:

An easy way of double checking through this for yourself would be to use the SDLT Calculator on the HMRC site - it's very straightforward to use, and allows you to select that your transaction will be replacing your main residence - that should then show you the correct level of SDLT payable. You would then be able to save the calculation and forward that to your solicitor so they can see your calculations, and that should clarify things. 

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#!/intro

A problem with the online calculator, is that it does not explain the conditions which have to be met for one to count as "replacing" a main residence.  The condition which most often causes a problem is where the old home is being retained.  OP is selling their old home, so should be fine.

My point is that OP showing their solicitor a report generated from the HMRC calculator will not be very compelling evidence on its own.  Combined with an analysis of how the five conditions in SDLTM09800 are met, it would be of more value.

Charlie1985

Thank you all for your input and guidance this is really helpful and reassures us with planning our new purchase.

Quick question (all be it off the subject slightly) is there a way we could make our buy to let property out main residence (it is currently empty) so that we could sell that property instead and still avoid the 3% stamp duty surcharge? Not sure what the rules are around what classes as your main residence in this instance? Any advice would be highly appreciated again.

noitsnotme

Charlie1985 said:

Quick question (all be it off the subject slightly) is there a way we could make our buy to let property out main residence (it is currently empty) so that we could sell that property instead and still avoid the 3% stamp duty surcharge? Not sure what the rules are around what classes as your main residence in this instance? Any advice would be highly appreciated again.

Move in and live there.  As in sleep there and change all your addresses with bank accounts etc to the new address.

You’ll likely have to pay Capital Gains Tax when you sell it, for most of the period you owned it except the short period you live there.  Payable within 60 days of the sale being finalised.

And then factor in the CGT you might have to pay for what is currently your main residence, when you sell it, for the period you no longer live there.

SDLT_Geek

Charlie1985 said:

Thank you all for your input and guidance this is really helpful and reassures us with planning our new purchase.

Quick question (all be it off the subject slightly) is there a way we could make our buy to let property out main residence (it is currently empty) so that we could sell that property instead and still avoid the 3% stamp duty surcharge? Not sure what the rules are around what classes as your main residence in this instance? Any advice would be highly appreciated again.

For a property to count as your main residence you have to live there with "a sufficient degree of permanence and expectation of continuity". 

To live in the let property as a stepping stone when trying to buy a new home is unlikely to meet this test, especially if done to gain a tax advantage.

Charlie1985

Hi everyone a further question please on this topic.

If we refinance our existing property (current main residence) and then rent that out as a BTL and acquire a new property as our new main residence does that mean we do not have to pay the stamp duty surcharge?

As we will only have one main residence would the above option work for us in saving the additional stamp duty charges?

Caz3121

you would need to 'dispose' of your current main residence....sell it
If you keep it then you are adding an additional property the additional 5% will apply

Bookworm105

Charlie1985 said:

Hi everyone a further question please on this topic.

If we refinance our existing property (current main residence) and then rent that out as a BTL and acquire a new property as our new main residence does that mean we do not have to pay the stamp duty surcharge?

As we will only have one main residence would the above option work for us in saving the additional stamp duty charges?

no, replacing a main residence means you no longer own it , ie you have sold it!
your suggestion means you retain the property as a BTL and acquire an additional new property - strangely therefore the additional rate SDLT applies to that additional purchase.