Does the 3% SDLT surcharge apply to the acquisition by one tenant in common of the interest of the other?

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“A and B own property as tenants in common 50/50. B dies and doesn’t leave her share in the property to A. B’s estate has agreed to sell her share to him for £65,000. This is A’s main residence.

I’m proposing dealing with it by a deed of assignment of beneficial interest and making an application in form RX3 to have the form A restriction moved.

It’s above the £40,000 so a notifiable transaction.

If the client doesn’t own another property I do not believe any SDLT will be payable.  I’m checking whether he does own another property but if he did on the basis that he would not be replacing his main residence as it is the same would the 3% be payable? Madness if it does?!!”

Source: BLG Member 

 


If the interest A is acquiring is a ‘major interest’ (see below) and A has a major interest worth £40,000 or more in another dwelling (and that interest is not subject to a lease with an unexpired term of more than 21 years), you are correct that the 3% surcharge will apply unless A is replacing his only or main residence.  This will not be the case here as the dwelling in which he is acquiring the remaining 50% is the same as that in which he currently lives.

A ‘major interest’ is defined in section 117(2) FA 2003 as follows:

‘In relation to land in England or Wales, …

(a) an estate in fee simple absolute, or

(b) a term of years absolute, whether subsisting at law or in equity.’

In SDLT Technical News No. 5 (August 2007) HMRC said:

‘Our view is that the definition is, as the wording suggests, intended to mirror the wording of LPA 1925 s 1(1).  The words “in equity” are intended to extend the scope of “major interest” to equitable interests which are equivalent to an estate capable of subsisting at law.’

There is a view that an undivided share is not a major interest for most  SDLT purposes (including  the 3% surcharge) as it is an interest in the equitable estate of beneficial co-owners and is not a legal estate.  In other words, the major interest is what is owned together, not the interest of each co-owner.  This conclusion is supported by the fact that in certain parts of the SDLT legislation, for  example, paragraph 6F(7)(b) of Schedule 4A, an undivided share in a major interest is expressly included as a major interest but not in Schedule 4ZA (the surcharge provisions).  However this is not HMRC’s view (see Notes on page 26 of the Guidance Note on ‘Stamp duty land tax – Higher rates for purchases of additional residential properties’– November 2016).  The safer course must be to assume that a co-ownership interest is caught by section 117(2).

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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