‘There’s something that doesn’t make sense. Let’s go poke it with a stick’ (Doctor Who in ‘Amy’s Choice’)
I can’t believe over two months have passed since my last blog post and I’m still bogged down in the SDLT surcharge legislation in Schedule 4ZA FA 2003. My insomnia is no better either but thanks for asking.
Even after making allowances for sleep-deprivation, it seems to me that there are a number of unnecessarily tortuous provisions in Schedule 4ZA. One of them is the relief from the surcharge where the additional dwelling is a replacement for an individual’s ‘only or main residence’ (‘OMR’). Sounds simple, doesn’t it? Well, it isn’t.
As a reminder for those of you who have found it more productive to bang your head against the closed doors of your local tax office than to spend hours staring at this stuff, the relief has four conditions. These conditions are slightly different depending on whether the OMR is disposed of before or after the acquisition of a new one. Where the disposal occurs first the conditions are, using the language of paragraph 3(6) of Schedule 4ZA:
1. On the effective date of the purchase, the ‘purchaser’ intends the ‘purchased dwelling’ to be his OMR;
2. The purchaser (or his spouse or civil partner at that time) has disposed of a major interest in another dwelling (the ‘sold dwelling’) within three years of the effective date of the purchase;
3. That sold dwelling was at any time during that three-year period the purchaser’s OMR; and
4. At no time since the effective date of the disposal of the sold dwelling has the purchaser (or his spouse or civil partner) acquired a major interest (or its equivalent) in another dwelling with the intention of it being his OMR.
Of course as this is tax legislation we are looking at, the use of the words ‘purchaser’ and ‘sold’ doesn’t mean that there has to be a purchase or a sale. All that is needed is an acquisition of a chargeable interest, in which case the person who has acquired that interest is a ‘purchaser’ provided that that person has either given consideration for, or is a party to, the transaction.
Oh, and then there are the transitional rules which apply only where the disposal occurs before the acquisition and only where the acquisition happens on or before 26 November 2018. These rules remove the three year limit from the second and third conditions.
Oh, and where there are joint purchasers each one must satisfy all the conditions.
Oh, and where only one spouse or civil partner is the purchaser each of the four conditions have to be satisfied by the other as well. This means that although a disposal of an OMR by an individual’s spouse or civil partner counts (Condition 2) that dwelling must have been each individual’s OMR (Condition 3). In other words, it is not enough that the dwelling was the individual’s spouse’s or civil partner’s OMR.
Oh, and the relief does not apply where there is a purchase of more than one dwelling in the same transaction unless the other dwellings are ‘subsidiary’ to a main dwelling.
(Pause, take a calming breath and write down your answer before reading on).
The requirement for the purchased dwelling to be different to the one which is disposed of can produce some odd results. For example, the transfer of a married couple’s OMR from the ownership of one spouse into joint names would not qualify for relief as the transferee would not be replacing an OMR. This is assuming that HMRC are correct in their view that an undivided share is a ‘major interest’ for the purposes of Schedule 4ZA.
Another odd result is that relief would not be available where the lease of an OMR is extended.
Finally to cheer you up I’ve dipped into my February postbag and found an OMR query with a happy ending:
‘A owns the sale property in her sole name. She also owns another property jointly with B which is let on an assured shorthold tenancy. A and B who are a couple live together in the sale property which is their main residence. They intend jointly purchasing a property to replace this property however, as B does not have an interest in the sale property, my understanding (from the examples in the HMRC November 2016 Guidance Note) is that the higher rate will be triggered. Have I got this right?
Yente, Saffron Walden’
You are correct that the 3% surcharge will apply to the purchase of the new home. As A and B are buying jointly and are not married the exemption for the replacement of an only or main residence would not apply – B will not have disposed of a major interest in the sale property although he has lived there.
A and B who had been together for 18 years got married before their OMR was sold. No, I’m not joking. HMRC may be unlikely match-makers – I hear that the marriage allowance is not a roaring success – but it seems that an extra 3% charge to SDLT may be just the encouragement some people need to tie the knot.
If you want to read more heart-warming tales from the annals of a tax agony aunt, please see the SDLT Q&A section of my website.
Tax lawyer specialising in business tax, SDLT and VAT