I own three properties in the UK — two of which are in London and are rented out, and another in the West Midlands, where I used to live, which my mother uses. I moved in with my partner last year and am registered at his address on the electoral roll.
We plan to sell my partner’s house — and potentially my property in the West Midlands as well — so we can buy a larger property.
What are the stamp duty implications, if I do or don’t sell my original residence? Also, I hear that the government may be reviewing the policy on the additional stamp duty on additional property purchases. What are the potential changes and how could they affect me?
Edward Jarron, partner in the residential property team at Withers, says if one of the objectives in your planning is to reduce the amount you pay in stamp duty land tax (SDLT), then you are right to give some careful thought as to how you deal with the property transactions. There is a risk you would incur higher surcharge SDLT rates, particularly where you own or have owned other properties.
In your situation, the key question is whether you would be eligible for exclusion from the surcharge rates, or be able at a later date to reclaim the additional stamp duty paid, because you and your partner had replaced your main homes — despite owning other properties.
Let’s take the first scenario in which your partner sells his home, but you keep yours in the West Midlands. Your property ownership would be considered independently and, by retaining your home while still owning other residential properties, you would trigger the surcharge rates of SDLT on your new home.
If, following the purchase of the new house, you sold your West Midlands property, then assuming that HM Revenue & Customs accepted it was your former main home, your partner had disposed of his main home and those sales and purchases had taken place within three years, then you may be eligible to reclaim the surcharge.
HMRC may, however, take issue with this on the basis that the West Midlands property is no longer your main home as it was lived in by a third party — your mother. You may be able to go some way to redress that by moving back into it following the sale of your partner’s house.
In the second scenario, were your partner to sell his property, and you also sold yours in the West Midlands prior to the purchase of the replacement property, each of your property holdings must be analysed independently when you buy the new house. Assuming HMRC accepted that the West Midlands property was your main home, your partner had disposed of his main home, and the purchase of the replacement property took place within three years, then this could be treated as a purchase of a replacement of each main home and you could avoid the surcharge rates.
Stamp duty replacement relief is only available to a couple on their partner’s property if they are married or in a civil partnership. Cohabiting, unmarried couples are not able to claim replacement relief on their partner’s property. I have assumed this is your position here. You are also right to be alert to changes in stamp duty rules, as these happen fairly often. I’m not aware of any imminent changes, but the Budget in March 2020 may contain a surprise.
Leigh Sayliss, a partner and head of business and property taxes at law firm Howard Kennedy, says that whether the extra 3 per cent for additional properties applies depends on a range of factors, so you ought to take further advice when you come to move in a couple of years.
When you do move, you’ll have to pay the additional 3 per cent because you will own other residential property (assuming your London properties are residential and let on short leases). This is unless you can claim “replacement of main residence” relief.
From your question, it appears you have two main residences to consider — your West Midlands property and your partner’s house — but your partner only has one, his house.
On the understanding that you and your partner are neither married nor civil partners, both you and your partner would need to sell your previous residences. Your partner would need to sell his house, so that he does not own two residential properties, and you would need to sell your West Midlands property so that you could claim that you are replacing your main residence.
There are some timing requirements to claim relief. Your West Midlands property must have been your main residence within the three years before your new purchase. As you have already moved out, the clock is ticking. If both you and your partner have sold your old homes before you buy the new one, you will not have to pay the additional 3 per cent. If either (or both) of you have not sold your respective old homes before you buy the new one, you will have to pay the additional 3 per cent. However, as long as both homes have been sold within three years of buying the new one, you can claim a refund once both of the homes have been sold.
If, on the other hand, you were to be married (or civil partners) when you bought the new home, the position would be different. The rules are complex, but from the information you have given only your partner’s house would need to be sold to claim relief, because you would effectively be treated as if you had sold his home. Selling his house should give you the relief without any need to sell your old home. However, selling your West Midlands home without selling his house would not be sufficient because your partner has not lived in your home as his main residence.
Changes in SDLT are likely to be included in the Budget on March 11 but it is extremely difficult to predict what the new chancellor may be planning. While there is no specific reason to be wary about changes to the additional 3 per cent charge for owners of multiple properties, the government did announce, just before the election, that it would introduce a further additional 3 per cent charge on non-UK residents buying residential property. We can but wait and see what the Budget may bring.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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