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Where Taxpayers and Advisers Meet

Extra 3% SDLT - Is this a way to legally reduce it?

fizzykoi
Posts: 6
Joined: Mon May 12, 2014 8:23 am

Extra 3% SDLT - Is this a way to legally reduce it?

Postby fizzykoi » Thu Mar 30, 2017 8:33 am

My son is planning to buy a house to live in, after many years of renting. However, he owns 1/3rd of a BTL property that we gifted him to help pay his student loan. So, as I understand it, he would have to pay the extra 3% SDLT on the purchase of his first home (despite this new tax being intended to help first time buyers!).

It occurred to me that he could reduce his SDLT liability by buying a small property (preferably less than £40K but unlikely where he lives), take the smaller extra 3% SDLT hit, declare this to be his main residence, then sell this property before he buys his new house - which would then be a replacement main residence.
Would this work? How long would he have to own the smaller residence for it to be considered his main residence?

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby maths » Thu Mar 30, 2017 11:03 am

What would the CGT charge be were your son to simply transfer the 1/3rd interest back to you?

nickgo61
Posts: 1
Joined: Thu Mar 30, 2017 4:10 pm

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby nickgo61 » Thu Mar 30, 2017 4:13 pm

Sorry to hijack this group but I need some advice regarding the additional SDLT 3% tax, my query is as follows:

• I separated and subsequently divorced from my wife in 2012 – as a consequence we sold our house on 11th October 2012, this was the only property I owned/part-owned
• I then rented a property as a sole tenant from 12th October 2012 until 10th August 2013
• On 11th August 2013, I moved into a new rental property with my girlfriend where we stayed until August this year and have since moved into a different rental property where we currently reside
• My girlfriend and I are now married (since 25th October 2015)
• Prior to moving in with me at the rental property in August 2013, my wife owned (and still does) a property that was her primary residence which she purchased and moved into in April 2012
• I therefore believe that I may be eligible for exemption of the additional SDLT 3% having read the following on the Daily Telegraph website:
- For existing property owners to be exempt, they must be buying a main residence rather than a second home or investment property and have previously owned another main residence that they sold at any time before the announcement of the stamp duty surcharge on November 26 2015
- Anyone who fits these criteria has until November 26 2018 – three years after the announcement in last year’s Autumn Statement – to buy an additional home without paying the extra stamp duty
• My main query is due to the circumstances of my wife owning a property that was her primary residence

Any help/advice gratefully received.

Thanks

fizzykoi
Posts: 6
Joined: Mon May 12, 2014 8:23 am

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby fizzykoi » Thu Mar 30, 2017 5:22 pm

The combination of CGT, stamp duty (for us) and legal fees (x2) would be around the same as the additional 3% so selling his 1/3 share to us would not be worth doing.
Frankly even buying a cheaper house first is probably too much hassle for the potential savings but I'm trying to find a way to help him. I can't believe the government is penalising people like my son - just because they couldn't afford to buy their own home (or because their situation made it more sense to rent) before the new rules came in...

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby maths » Fri Mar 31, 2017 12:45 pm

nickgo61

If you owned a beneficial share in the original marital home which was sold 2012 and you are now buying a property in which you intend to live then the 3% SDLT charge will not apply (assuming purchase on or before 26 November 2018).

This applies whether the new purchase is to be undertaken solely by you or you and your new wife jointly.

someone
Posts: 383
Joined: Mon Feb 13, 2017 10:09 am

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby someone » Fri Mar 31, 2017 2:02 pm

maths - you got me all excited! Unfortunately, I don't believe your answer is correct.

http://www.shoosmiths.co.uk/client-reso ... 11109.aspx

This check should be carried out by each partner in the case of a purchase by a married couple or a civil partnership and if either answer Yes as set out above the transaction should bear the Additional Dwelling tax.

And nickgo61's wife owns two properties at the end of the transaction and her previous main residence has not been sold. I'm not even sure she would be eligible for a refund if she subsequently sold her other property as it's not now her main residence.

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby maths » Fri Mar 31, 2017 5:04 pm

maths......I don't believe your answer is correct
I hate to say it, but I believe to the best of my knowledge I am correct.

In the tax business relying on articles, popular press etc for support is of interest but of no value. Only be reference to the legislation can an issue be resolved.

Your reference to the shoosmiths piece is interesting but far from complete and is arguable, it seems, misleading.

You say:
And nickgo61's wife owns two properties at the end of the transaction and her previous main residence has not been sold
It is, however, not necessary for her to have sold her previous main residence. All that is necessary is that she OR HER SPOUSE has sold a major interest in another dwelling which he in fact has.

I, as always, stand to be corrected by someone with greater experience and/or knowledge than I possess.

In my defence I refer you to FA 2003 Sch 4ZA paras 2(3), 3(5) and in particular 3(6)(b).

Maybe if i am correct you can get excited all over again but if I'm wrong I will humbly apologise to you and the original poster.

someone
Posts: 383
Joined: Mon Feb 13, 2017 10:09 am

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby someone » Fri Mar 31, 2017 5:41 pm

Maths, I really do hope you are correct! However...

http://www.legislation.gov.uk/ukpga/201 ... 28/enacted

Meaning of “higher rates transaction” etc
(3)In the case of a transaction where there are two or more purchasers—
(a)take one of the purchasers and determine, having regard to that purchaser only, whether the transaction falls within any of paragraphs 3 to 7, and
(b)do the same with each of the other purchasers.
If the transaction falls within any of those paragraphs when having regard to any one of the purchasers it is a “higher rates transaction” (otherwise it is not).


I believe for husband and wife they are "two purchasers" even if only one of them will end up on the deeds. But maybe not in which case maybe nickgo61 will be able to take advantage of the replacement of main home exception if he's buying in his sole name.


Single dwelling transactions
Condition A is met.
Condition B is met.
Condition C is met.

Condition D we therefore need to be not met. (replacement of main residence)
Which is where I think the problem is.

6(a) OK
6(b) problem
6(c) OK
6(d) OK

in another land transaction (“the previous transaction”) whose effective date was during the period of three years ending with the effective date of the transaction concerned, the purchaser or the purchaser’s spouse or civil partner *AT THE TIME* disposed of a major interest in another dwelling (“the sold dwelling”),

Unfortunately, when nickgo61 disposed of his main residence he was not married to his wife. Therefore his now wife cannot take advantage of his disposal to trigger the replacement of main residence exception

There is an asymmetry in 6(b) and 6(d). 6(b) says spouse AT THE TIME while 6(d) says spouse. I'm assuming this is deliberate :-(

For my circumstance, the asymmetry means that I'd also fail the 6(d) test but I think for nickgo61 it's the 6(b) test that is going to be the problem.

Annoyingly for me, with foresight I could have arranged affairs such that both my wife and I independently disposed of a main residence before we were married and so could take advantage of the exception. But I didn't so arrange affairs so I'm stuck :-(

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby maths » Sat Apr 01, 2017 6:58 pm

Interesting but not sure I can agree with your interpretation of (6)(b) and (d).

(6)(b) requires that the purchaser or purchaser's spouse [defined at the date of purchasing the new property] when undertaking the "previous transaction" at the time of undertaking the previous transaction must have disposed of a major interest in another dwelling.

(6)(d) is different as it requires over a period of time (not at a specific point in time) that no major interest had been acquired intending to be a sole or main residence.

I think nickgo61's problem is in fact with (6)(c) as at the time the former major interest was sold back in 2012 by current husband, it was not the current spouse's sole or main residence.

Am beginning to lose the will to live.

someone
Posts: 383
Joined: Mon Feb 13, 2017 10:09 am

Re: Extra 3% SDLT - Is this a way to legally reduce it?

Postby someone » Sat Apr 01, 2017 8:56 pm

I have lost count of the number of times I have been told my interpretation of the meaning of the letter of the law bears no resemblance to what it actually means - so I'm certainly not going to try to change your mind!

I am beginning to think that there might be a loophole in this legislation (if my interpretation is correct - which probably indicates that it isn't) which would allow husband and wife to acquire an arbitrary number of properties without paying the additional SDLT.

main home in husband's sole name. Husband buys new main residence - pays extra SDLT. husband gives former main residence to wife (no SDLT if no mortgage) and then reclaims additional SDLT on purchase due to disposal of prior main residence within three years. Rinse, repeat.

(The fact that the disposal to the wife is assessed for SDLT makes me think it really is a disposal in this case)


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