Does the 3% SDLT surcharge apply where only one of joint purchasers is replacing a residence?
“We are acting for A and B in connection with their joint purchase of their new residence and for A in connection with the sale of their joint existing residence. B owns other properties. A and B are not married. HMRC confirms that the purchase attracts higher rate SDLT because B is not a joint owner of the property being sold and A and B are not married. We anticipated that this would be the case.
A and B’s existing residence was purchased in A’s sole name in 2009 under the right to buy legislation. B states that he has been living at the property for many years and was living there at the date of A’s purchase. B has asked whether A and B’s existing residence can now be transferred into joint names so that the purchase attracts lower rate SDLT?”
Source: BLG Member
Where there is more than one purchaser the tests for the 3% surcharge on the purchase of additional dwellings are applied to each one and the surcharge applies to the purchase if it would apply to any one of them.
The disapplication of the surcharge where the purchase is the replacement of a purchaser’s only or main residence and the sale of the existing residence takes place first has four limbs. The one we are concerned with here, in relation to purchaser B, is that (in a case where the acquisition takes place on or before 26 November 2018), on or before the effective date of the purchase of the new property, B (or his spouse or civil partner) must have disposed of a major interest in a dwelling which at some time before that had had been B’s only or main residence.
If A transfers a major interest in the existing residence to B the higher rate surcharge should be avoided on the acquisition of the new home in joint names provided that the arrangement is not a sham and is not caught by the general anti-abuse rule (GAAR) in section 75A FA 2003. That acquisition of the interest by B could be subject to the 3% surcharge if there is chargeable consideration.
The GAAR targets the case where a person disposes of a chargeable interest and another person acquires that interest or an interest derived from it and transactions are inserted with the result that the SDLT payable is less than it otherwise would have been. The inserted steps are ignored and SDLT is chargeable on a notional land transaction, the consideration being the total consideration given or received. There is no clearance mechanism nor is there a tax avoidance motive test.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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