Loss of first time buyer status due to 1/4 ownership of holiday house in France

[rjhfandclf]

We recently bought a property in France jointly between my wife, myself, and our two children in equal 1/4 shares (for specific IHT reasons). We all remain UK residents and the property is a shared holiday home. By buying ‘indivision’ means that no one of us can part with our share without first having to offer it to the other owners via pre-emption should they wish to sell. If they cannot agree to a sale of the share, the whole asset has to be sold.

My son has been renting in the UK for many years, and has now decided he wants to buy a leasehold flat for £285k as his main residence, but it appears that the recent changes to SDLT mean that because he bought his share of the French house first by a few months (share cost approx. £60,000) he will be taxed on his flat purchase as an ‘additional property’. He has never lived at all in the French house, and would have been a first time buyer in the UK, so his SDLT bill is going to be £12,800 instead of zero. We are naturally keen to see if there is any way around this somewhat unreasonable predicament:

1. My son paid for his share in the French property from the proceeds of sale (in 2017) of a jointly inherited estate that included a property in the UK. He never lived in the property and it was sold during the administration before distribution, so I am assuming it does count as a major interest for HMRC.

2. Could he perhaps sell (or gift) part or even all of his share in the French property (through French pre-emption rights) to one of the other co-owners (indivisaires) to reduce his share value to below the £40,000 threshold for additional properties?

3. Could that person at a later date resell (or gift) the share back to him?

There are relevant differences in the allowable values of gifts between various family relationships that would probably mean that if that route were a preferred option then it might have to utilise the much higher parent/child allowances and vice-versa.

Any other observations and suggestions would be appreciated. It seems highly probable that there will be a cost attached to this in any case – either through UK property tax and/or French notaire’s fees in any property transfers.

[maths]

As your son owns an interest in the French property then this precludes him qualifying as a first time buyer for SDLT. Any disposal of this interest will not allow him to qualify as a first time buyer.

If on "completion" of his proposed new residential purchase he still owns the interest in the French property then the 3% SDLT charge will be in point. However, if he did not own this interest, then on completion of the new property purchase the 3% will not apply. He could thus sell or gift his share to a third party and/or a family member. However, this most be a "no strings" attached disposal and must be properly documented under French law.

[rjhfandclf]

Thanks Maths - that largely confirms more clearly where I am arriving myself. I have found that the 'gifting' route in France has more significant notaire fee and tax costs attached to it than I expected, and if we aimed to do it twice over a period, added to the lower standard SDLT level still payable, the figures simply don't work out favourably - regardless of all the hassle.

Just one further query though; although my son paid for his share a few months ago, and the acte de vente has been signed (so we have occupation of the property), the final formalities are still being completed and it has not yet been registered in our names - as this can take up to or over a year after the signing to receive the title deeds. I'm not sure where this stands in the eyes of HMRC re a major interest.