Has the old home been disposed of?
3% Additional Rate, Couples, Dwelling, Only or Main Residence
“I have a client who is selling and buying. The property being sold is in his wife’s sole name and is their main residence but she is retaining a part of the property being a carport with a flat above. She also owns a one third share of a butchers shop. Both clients also own a flat in Spain which they have owned for a number of years and I believe there is no real equity in it. They did of course pay the Spanish equivalent of stamp duty at the time.
They are purchasing the property which will be their main residence in the sole name of the husband who owns no other properties apart from the share of the property in Spain.
My question is the obvious – is he liable to pay stamp duty land tax at the higher rate.”
Source: BLG Member
Where one party to a marriage (or a civil partnership) is a sole purchaser and the parties are ‘living together’ (applying the test in section 1011 ITA 2007) on the effective date of the purchase of a dwelling (normally completion) the tests for the 3% surcharge are applied to both parties individually even though one is not a purchaser and even where that person has no interest in the new property. If one is caught the surcharge applies.
The disapplication of the 3% 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. As they apply here these are:
(1) On the effective date of the purchase of the new property, both husband and wife intend to use the purchased dwelling as their only or main residence;
(2) The wife has disposed of a freehold or leasehold estate in another ‘dwelling’ (the ‘sold dwelling’).
(3) The sold dwelling was, at any time during that three-year period, the couple’s only or main residence.
(4) At no time since the effective date of the disposal of the sold dwelling has either member of the couple acquired the freehold or leasehold estate in another dwelling with the intention of using it as the purchaser’s only or main residence.
The question therefore is whether the retention of the carport and flat by the wife means that conditions (2) and (3) are not fulfilled. This will depend on whether the carport and flat were part of the same dwelling for the purposes of the 3% surcharge as the property which is being sold. If they were then, arguably, the sold dwelling was not the couple’s only or main residence but was only part of it.
A dwelling is a building or part of a building that satisfies any of the following:
(a) It is used as a single dwelling;
(b) It is suitable for use as a single dwelling;
(c) It is in the process of being constructed or adapted for use as in (a) or (b).
A dwelling includes land that is or forms part of the garden or grounds of the building (including any building or structure on such land.
The changes to Schedule 4ZA resulting from the Autumn 2017 Budget may affect matters. The amendments to paragraph 3 (in paragraph 2 of Schedule 11 FA 2003) require the ‘sold dwelling’ to be disposed of entirely. The amendments will have effect from 22 November 2017.
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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