Tax Forum :: Free Tax Advice

I have sold my house and now own no properties. I want to buy a small flat to live in while I look for the house I want to become my main residence after which I will use the flat as an investment. Is the surcharge always based on the second property you buy? Obviously I would prefer it based on the flat as the purchase price will be considerably less.

The surcharge will be payabe when you acquire a second property. The exemption that applies when you replace a residence is lost as soon as buy another dwelling.

Will the flat be bought in England? Or in Wales completing after 1 April 2018 when the rules are different?

I do not consider the answer to be as simple as bd6759 suggests. It is likely to turn on issues of intention and the meaning of "residence" which involves a degree of permanence and expectation of continuity.

Potentially both purchases could escape the higher rates. It seems clear that the first purchase will escape the surcharge (unless in Wales from 1 April when it could be caught as an intermediate transaction).

I agree with SDLT geek that I don't think this is clear cut.

If there wasn't the SDLT question then, instead, the discussion would be on whether there's PPR and RLR available on selling the flat.

ISTM that either there is SDLT uplift on the second property but PPR and RLR available on an eventual sale of the flat or:
Both get standard rate SDLT but the short period of occupation of the flat doesn't trigger the CGT reliefs on eventual sale.

But I haven't gone back to check whether the the replacing main home exception is stopped by the purchase of a property or only of a main residence. If the former then the 3% uplift is always due.

I have gone back to check and agree that relief may be due.

The replacement condition at 3(6)(d):

at no time during the period beginning with the effective date of the previous transaction and ending with the effective date of the transaction concerned has the purchaser or the purchaser's spouse or civil partner acquired a major interest in any other dwelling with the intention of it being the purchaser's only or main residence.

It all depends on whether the flat can be regarded as a residence. If it is not a residence then the next purchase will be a replacement for the old one (provided it is within 3 years: but the longer it takes the more likely the flat will be a residence). If it is a replacement, the extra 3% does not apply.

It's also worth noting that if the flat is a residence you will get CGT reliefs when you sell it. If it is not a residence, you won't.