Sarah Bradford outlines the rules for reclaiming the stamp duty land tax paid at the higher rates on the sale of a former main residence where a replacement main residence was purchased before the previous main residence was sold.
Since 1 April 2016, higher rates of stamp duty land tax (SDLT) apply to purchases of second and subsequent residential properties where the cost of the additional property is over £40,000 (i.e. virtually all properties!). Although the measure was aimed mainly at buy-to-let landlords, it also affects anyone who has a second home, such as a holiday cottage or city flat.
Despite the supplement, where a person has more than one residential property, it is possible to replace the main residence without suffering the additional rates on the purchase of the replacement home.
The higher SDLT rates are 3% more than the standard rates for residential sales, and are as shown in the table below.
Purchase price Standard rate Additional properties
Up to £125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1,500,000 10% 13%
Over £1,500,000 12% 15%
What is a main residence?
Where a person has more than one residential property, it will normally be a question of fact as to which is their main residence, and, therefore, whether the property being replaced is his or her main residence. Where a person lives only at one property (for example, if other properties that he owns are rented out), the property in which he lives is clearly his main residence. However, where a person has resided in more than one property (e.g. if they live in a city flat in the week and the family home at the weekend), it is necessary to take account of the facts of the case to determine which is the main residence.
It should be noted that the main residence will not necessarily be the residence in which the taxpayer spends most of his or her time. Consideration will be given to questions such as where the taxpayer’s family spend their time, where any children go to school, where the individual is registered to vote, where the taxpayer is registered with a dentist and doctor and suchlike.
Replacing a main residence
The higher rates do not apply to the purchase of a property which is the replacement of a main residence, even if the taxpayer has additional residential properties. This means that a taxpayer can move home without suffering the SDLT supplement, even if they own other properties. What is critical is that it is the main residence that is being replaced.
Example 1: Selling and buying a main residence
Ben lives in a flat in Northampton. He also owns three other properties in the town. He sells the flat and buys a three-bedroom house for £300,000. The sale of the flat and the purchase of the new house complete on the same day. Ben moves into the house as his new home.
At the time of the purchase of the three-bedroom house, Ben owned additional residential properties (i.e. the three houses that he lets out). However, despite this, SDLT on the purchase of the three-bedroom property is payable at the normal residential rates, rather than the higher rates for additional residential properties, because Ben is replacing his main residence. The SDLT that is payable on the purchase price of £300,000 is thefore £5,000 ((£125,000 @ 0%) + (£125,000 @ 2%) + (£50,000 @ 5%)).
Sell then buy
The position is pretty straightforward where the sale of the former residence and the purchase of the new main residence take place at the same time. However, this is not always the case and the sale and purchase may occur independently. Where this happens, the extent to which the SDLT additional properties supplement is payable depends on the order of the sale and purchase.
Where the former residence is sold first and the taxpayer has additional residential properties, the SDLT supplement is not payable on the subsequent purchase of the new main residence, as long as that occurs within three years of the sale of the previous main residence.
Example 2: Replacement within three years
Andrew has a house in Dorset. He also has two flats which he rents out. He gets a new job in London and sells his house in Dorset. He decides to rent in London for a year before committing to buying a new house. Fourteen months after the sale of the Dorset house, he completes on a house in Chiswick for £1 million.
Although he has two additional residential properties at the time of the purchase of the Chiswick house, this is a replacement for his former main residence in Dorset and is purchased within three years of the sale of that property. As a result, SDLT is payable on the Chiswick property at the normal residential rates. Therefore, Andrew pays SDLT of £43,750 ((£125,000 @ 0%) + (£125,000 @ 2%) + (£675,000 @ 5%) + (£75,000 @ 10%)). He does not suffer the SDLT supplement.
Buy then sell
However, the position is somewhat different where the purchase of the new main residence happens before the sale of the old main residence. In this instance, the higher rate is initially payable on the purchase of the new residence. However, the supplement can be reclaimed provided that the former main residence is disposed of within three years of the acquisition of the new residence.
Example 3: New home bought first
Claire and Bill are relocating. They struggled to sell their existing home and as they were keen to be in their new home for the start of the new school year, they proceed with the purchase and sale independently. The sale of their new home completes in July 2016, and the sale of the old home completes in September 2016. They pay £450,000 for their new home.
As at the time of the purchase of the new home, as they have an additional residential property, they must pay SDLT at the rates for additional residences. The SDLT paid is £26,000 ((£125,000 @ 3%) + (£125,000 @ 5%) + (£200,000 @ 8%)). This is equivalent to the SDLT at the standard rates of £12,500 ((£125,000 @ 0%) + (£125,000 @ 2%) + (£200,000 @ 5%)) plus a 3% supplement of £13,500 (£450,000 @ 3%)).
Once the sale of their old main residence has completed in September 2016, they can reclaim the supplement. The old residence is sold within the three-year window.
Reclaiming the supplement
A repayment of the SDLT supplement can be claimed where the former main residence is sold within three years of the purchase of the new home. The claim form can be found on the Gov.uk website (at www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties). The following information is required:
- personal details;
- main buyer’s details, if different;
- details of the property that attracted the higher rate of SDLT, including the effective date of the purchase and the SDLT Unique Transaction Reference number;
- details of the property sold;
- the amount of SDLT paid on the property that attracted the higher rates; and
- the amount of repayment claimed (i.e. the 3% supplement).
The claim form should be completed online and sent to HMRC at the following address:
HMRC Revenue and Customs – Birmingham Stamp Office
30 Union Street
The SDLT supplement must be reclaimed within three months of the sale of the former main residence or, if later, within a year of the filing date for the SDLT return for the purchase. It is important that the claim deadlines are not missed.
The SDLT supplement is not repaid automatically on the sale of the old home. It is therefore important that the need to claim a repayment is not overlooked, and that the claim is made within the relevant time limit. Potentially, there is a lot of money at stake.
This article was first printed in Property Tax Insider in September 2016.