The HMRC’s updated guidance on the controversial 3% Stamp Duty Land Tax loading on additional homes did little to make the situation clearer...
THIS ARTICLE WAS UPDATED ON 26 NOVEMEBER, 2018.
On 24 March 2017 – just ahead of the 12-month anniversary of the higher rates (3% surcharge) of Stamp Duty Land Tax coming into force on 1 April, 2016 – HMRC updated its brief online guidance - which oddly they called 'detailed guidance' - to include text on partnerships, trusts and inherited homes.
But amid some helpful parts in the document, there was also a good dose of misleading information and some mistakes.
In short, the scores of homebuyers (and, in many cases, their solicitors) who were uncertain as to whether the 3% surcharge will apply, were unlikely to be any clearer.
I have cited some of the most confusing points from the HMRC’s guidance of March 2017 and added an explanation, clarification or correction underneath.
Need to know just the basics on the 3% Stamp Duty Land Tax surcharge? Head to Zoopla's Q&A
When higher rates apply
HMRC guidance says: You may need to pay the higher rates of Stamp Duty Land Tax if you buy an additional residential property for more than £40,000.
To clarify: This should read, ‘£40,000 or more’ and not ‘more than £40,000’.
HMRC guidance says: Individuals and companies need to pay the higher rates when they buy an additional residential property in England, Wales or Northern Ireland. The higher rates apply even if your other residential properties are outside any of these countries.
To clarify: For companies the residential property does not need to be ‘additional’. A company will normally pay the 3% surcharge even if it owns no other properties. SDLT does not apply to purchases in Wales completing after 1 April 2018.
HMRC guidance says: You’ll also need to pay the higher rates if you don’t own a residential property and buy at least two residential properties at the same time.
To clarify: This is usually the case, but not always (see the section below about multiple properties in the same building or grounds).
When higher rates don’t apply
HMRC guidance says: You won’t have to pay the higher rates if you sell your main home on the same day you buy your new home.
To clarify: Yes – but, in many cases, nor are the higher rates payable where a main home was sold before the purchase of the new home.
This point involves the ‘three-year’ rules which only came into effect on 27 November, 2018. The ‘three-year’ rules make for a particularly confusing area – but HMRC did not take the opportunity to make them clearer in this guidance.
Find out more about the three-year rules with my article, The all-important rule that could see you escape paying higher rates of Stamp Duty.
In addition, the disposal of the previous main home does not have to be by way of sale as stated by HMRC. For the ‘replacement’ exception to be potentially available, it could also be a gift, or a disposal from a divorce or separation.
HMRC guidance says: You won’t be charged the higher rates if your other residential properties each have a value of less than £40,000 when you buy the new property.
To clarify: This does not make clear that, in a case where someone has a share in another property, it’s whether the share is worth less than £40,000 that will be looked at.
HMRC guidance says: The higher rates do not apply to mobile homes, caravans or house boats and purpose-built student accommodation.
To clarify: Student accommodation is a tricky area and goes back to the definition of a ‘dwelling’. Tread carefully here.
On multiple properties in the same building or grounds
HMRC guidance says: Two or more properties bought together may be treated as one if they are in the same building or grounds and the main property accounts for two-thirds of the total consideration.
To clarify: To some extent, yes – but two thirds or more. In fact, there are many complicated issues here, including the availability of multiple dwellings relief, which you can read more about here.
Buying a home with a granny flat? Find out if the 3% surcharge could affect you
HMRC guidance says: The beneficiary will also be treated as the purchaser if the trust holds property and the beneficiary is entitled to:
- occupy the property for life
- receive income from the property
When the beneficiary is under 18, the child’s parents are treated as the beneficiary.
To clarify: It’s not just the child’s parents who are treated as owning the property. A spouse or civil partner of the child’s parent will also be caught – so long as they are living with the parent (this still applies even if the child is not living there).
HMRC guidance says: If you inherit half or less of the major interest in a property in the three years before you make a purchase, and you don’t already have an additional residential property, you won’t pay the higher rates.
To clarify: This looks at whether the higher rates might be payable on a later purchase, within three years of such an inheritance. There is rarely any Stamp Duty Land Tax payable on an inheritance itself – because no ‘chargeable consideration’ is usually given for it.
On spouses and civil partners
HMRC guidance on ownership and spouses /civil partners: HMRC uses ‘shorthand’ when it says that a person may be viewed as the ‘owner of a property’ if it is owned by their spouse or civil partner.
To clarify: The rules mean that a spouse or civil partner will often be treated as a ‘joint purchaser’ of the property for surcharge purposes, even if they are not. But the results can be different, as the two examples of David and Caroline and Adam and Eve in this further paper demonstrate.
The first one involves a married couple where one already owns a property and the other buys a new one for them both to live in.
The second has a married couple already jointly owning another property worth £70,000.
In each case HMRC's 'shorthand' would suggest that the surcharge is due, while applying the rules shows that the surcharge is in fact not due.
HMRC have since replaced the guidance which this note comments on, but the comments above might still be useful. A commentary on the latest guidance of August 2018 can be found here.
This article is intended for general information purposes only and does not constitute legal or professional advice. Some of the examples are not covered by HMRC guidance and the official view of HMRC on the correct analysis is not known. Advice should be sought before proceeding with any transaction. The same applies to postings made the comments section of Zoopla's website.