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Where Taxpayers and Advisers Meet

SDLT on main home

Cloisters
Posts:32
Joined:Fri Oct 14, 2016 5:37 pm
SDLT on main home

Postby Cloisters » Thu Nov 05, 2020 11:03 pm

I own three properties. Two are rented and the one I live in will shortly be sold. I have lived in this one exclusively for a year.
I plan to move to one of the other properties for a period of less than three years during which I expect to buy another main home.
I would expect that as the sold main residence and home was sold, I would not pay the higher rate of SDLT i.e. 3% extra for owning two homes.
How can i ensure the records and processes ensure this as, by living in one of my other properties the tax man could assume that is my main home and it would be but not the one I sold and wish to claim as my main home for the purposes of reducing SDLT liability. It seems crazy to go and rent somewhere just to ensure I don't get caught out but this rule seems so complex I'm not sure how to protect myself.
Ideas would be most welcome please.

SDLT Geek
Posts:223
Joined:Sun Apr 30, 2017 5:45 pm

Re: SDLT on main home

Postby SDLT Geek » Fri Nov 06, 2020 8:12 pm

I suggest you do an internet search for an SDLT case study involving Katherine and the replacement exception. This shows how the HMRC .gov.uk guidance (which suggests that the sold home must be the latest main residence) is incorrect.

You should refer instead to the set of five conditions contained within SDLTM09800. These are the conditions to come within the “replacement exception” so that the 3% surcharge does not apply. I expect you will find that you will meet all five conditions, even if you make one of your other pre-owned properties your only or main residence in the meanwhile.

Cloisters
Posts:32
Joined:Fri Oct 14, 2016 5:37 pm

Re: SDLT on main home

Postby Cloisters » Fri Nov 06, 2020 8:36 pm

Many thanks for a quick and clear response. Curiously I had previously found the Katherine case study but it somewhat scared me as she had employed a barrister to fight her case which sounds pretty serious and would not wish to get to that level of stress with the tax authorities. However, you have now pointed out the clear rules in the SDLT manual and I've read the article more thoroughly in light of that and am much more relaxed about the situation. I shall make sure I keep documents of my occupation and dates etc.! Kind regards, Tim

bd6759
Posts:3543
Joined:Sat Feb 01, 2014 3:26 pm

Re: SDLT on main home

Postby bd6759 » Sat Nov 07, 2020 8:56 am

If you have only lived in your house for a year, HMRC may also query if it is actually a residence. Particularly in light of your proposed argument that living in another house for up to 3 years will not be a residence.

Cloisters
Posts:32
Joined:Fri Oct 14, 2016 5:37 pm

Re: SDLT on main home

Postby Cloisters » Sat Nov 07, 2020 9:27 am

Thank you for this.

As I have no other residence during this period and all bills and electoral roll registration are all to the current address, so I don't really see how that could be contested, as that would mean I did not have a residence for a year?

If I do live in another property then I accept that would become my residence for that period but it seems clear that as long as I have sold the first one within three years I don't have to pay the additional SDLT.

I'll follow the rules in good faith and see what happens. My only alternative is not to use my other property as an interim, but to rent somewhere so that I have an AST which is specifically identified in the tax manual as acceptable, but that will be an expensive form of insurance.

Thanks again.

SDLT Geek
Posts:223
Joined:Sun Apr 30, 2017 5:45 pm

Re: SDLT on main home

Postby SDLT Geek » Sat Nov 07, 2020 3:46 pm

Good point bd6759. 12 months is not long. There is no rule that a person must have a main residence. It comes down to whether the occupation was with a sufficient degree of permanence and expectation of continuity.

maths
Posts:8200
Joined:Wed Aug 06, 2008 3:25 pm

Re: SDLT on main home

Postby maths » Sat Nov 07, 2020 8:03 pm

Cloisters, as has been alluded to above there is a difference between "occupation" of a property and that property falling to be treated as a sole or main "residence".

Hence, it is perfectly possible for you to own three properties, rent two out and live in the third. However, living in the third could constitute occupation without that third property qualifying as a sole or main residence.

There are many many cases for CGT purposes as to what constitutes a sole or main residence and whether in fact a property is or is not a residence.

Re-occupation of either of the two rental properties is, per se, not a problem.

However, the property in which you have lived in for just one year might not qualify as a residence. Having said this, in practice if you're on the electoral register, DVLA address etc relate to the property it's unlikely short of a detailed investigation not to qualify as your sole or main residence. It would be very unhelpful if you have a track record of moving into a property for a year, selling and repeating the exercise.

SDLT Geek
Posts:223
Joined:Sun Apr 30, 2017 5:45 pm

Re: SDLT on main home

Postby SDLT Geek » Sat Nov 07, 2020 8:31 pm

Well put, maths.

bd6759
Posts:3543
Joined:Sat Feb 01, 2014 3:26 pm

Re: SDLT on main home

Postby bd6759 » Sat Nov 07, 2020 11:07 pm

As others have mentioned, my comment was whether the house you lived in for 12 months was actually a residence, in a real sense determined by applying the tests set down by the Courts.

Where you live afterwards will not affect that. You acknowledge that living in a property for up to three years might not make it a residence. You should understand that that could also apply to your current abode.

The question is, why did you buy your current abode, and why are you moving out?

Cloisters
Posts:32
Joined:Fri Oct 14, 2016 5:37 pm

Re: SDLT on main home

Postby Cloisters » Sat Nov 07, 2020 11:57 pm

Thank you for all the comments here.

We lived in a family house for 23 years, then moved here and tenanted the family home but have no plans to sell that within the three year window that we could use it for SDLT purposes as we have downsized and that house now provides a good pension.

We originally bought the current home as a BTL in 2016 with a view to downsizing and retiring here, which have now done.

However, having lived here for some time have now decided we want something different and are selling to free up funds to buy a new home without being part of a property chain.

We moved everything to this address when we moved in, including doctors, cars, etc per the book.

As we have another property locally to us here we can use (another BTL we bought in 2000), then it seemed sensible to use that rather than pay rent elsewhere.

However, as I started to consider the tax implications I thought it wise to seek clarification. It all used to be so simple (by contrast) until all the CGT and SDLT changes came in.

We may we rent something instead which seems to make the case simpler as the tax manual specifically states that an AST is disregarded, but thanks to the participants here I can make that decision with greater awareness.

It sounds like you just have to hope you don't get investigated and need defend your actions, but I guess that's true about many aspects of life, and being prepared with good documentation etc., is key.


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