SDLT Surcharge in this situation?

[Weald Accountant]

Hi all,

I cannot find a definitive answer for the following situation. If anyone has any guidance it would be greatly appreciated.

Husband & Wife own their own home (1).
The Wife also owns a plot of land with a Barn on it which has Permitted Development for change of use from Agricultural to Residential (2).
The Husband & Wife have bought another house to renovate (3). This was purchased using a BTL mortgage and originally intended to be BTL investment.

The SDLT surcharge was applied to the purchase of the new house (3).

The couple originally intended to develop the Barn (2) and move in using funds from the sale of (1) to complete the conversion works. Their situation has now changed as they are expecting a baby so have halted their plans to convert the barn (2). They instead plan to move into the new purchase (3) once the renovation is complete and use this as their main home.

There are 2 things I want to clarify, these are:
The Barn -
Their Solicitor has stated that the barn is treat as a second 'Residential Property', so that the couple already own more than one residential property. My own view is that, although there is permission to develop a residential property by converting the barn, as that work has not yet been carried out or even begun, this property is not a 'Residential Property'. I would welcome thoughts on this.

Reclaim of SDLT Surcharge -
Their solicitor has also advised that they will not be able to reclaim the surcharge on the purchase of the new house (3) as 'it is clear they did not intend it to be their home as they purchased using a BTL mortgage'. However, given that the situation has changed, if they move into the property and use it as their main home and manage to sell their original home (1) within 3 years it seems unfair to penalise them for a change in situation, especially if the barn (2) is deemed to NOT be residential. In this scenario they would end up owning only 1 residential property which is their main home, yet still be unable to recover the surcharge.

Thanks for your thoughts.

[SDLT Geek]

I agree with you that Barn 2 does not count as a dwelling so long as at the relevant date:
(a) It is not suitable for use as a dwelling
(b) It is not in the course of conversion to a dwelling.

However I do not agree that the 3% surcharge paid on Property 3 can be recovered on the sale of Property 1. Not all of the conditions in FA03/Sch4ZA/para3(7) are met. The problem is that at the date of the acquisition of Property 3 the purchaser did not intend to live in it as their only or main residence.