Our clients, a married couple, own a property that is their main residence and are entering into a transaction to purchase two dwellings that are next to each other, one of which will be their new main residence. They have been advised they will have to pay the additional 3% SDLT supplement on the purchase of the dwellings. If they sell their old main residence within 3 years of the purchase, can they reclaim the 3% back?
Paragraph 2 of Schedule 4ZA FA 2003 states the additional 3% applies if the transaction falls within any of paras 3 to 7. Where there is more than one purchaser, we apply the tests to each person and if the relevant paras apply to any of the persons, then the transaction is subject to the additional 3%.
As our clients are purchasing multiple dwellings under a single transaction, we need to consider paras 5 and 6 of schedule 4ZA.
Under para 5, the additional 3% applies where the following three conditions (referred to as Conditions A-C) are met in respect of two or more of the purchased dwellings:
- the portion of the chargeable consideration for the transaction which is attributable on a just and reasonable basis to the purchased dwelling is £40,000 or more (Condition A)
- if the purchased dwelling is subject to a lease upon which the main subject-matter of the transaction is reversionary, that lease has, on the effective date of the transaction, an unexpired term of no more than 21 years (Condition B)
- the purchased dwelling is not ‘subsidiary’ to any other of the purchased dwellings (Condition C)
Para 6 applies where only one of the purchased dwellings meet condition A-C. This would occur where, for example, the other dwellings are subsidiary dwellings and therefore, falling outside of condition C.
The transaction is a higher rate transaction under para 6 if, in addition to the above conditions, the following requirements are also met:
- the purchased dwelling in respect of which those conditions are met is not a replacement for the purchaser’s only or main residence and
- at the end of the day that is the effective date of the transaction:
- the purchaser has a major interest in a dwelling other than one of the purchased dwellings
- that interest has a market value of £40,000 or more and
- that interest is not reversionary on a lease with an unexpired term of more than 21 years
As we can see, para 6 contains the replacement of main residence condition as for single dwelling interests.
In summary, to establish whether the client is able to reclaim the additional 3%, we need to determine under which paragraph the transaction falls. If para 5 applies, then the client will be unable to reclaim the 3% back even if they sell the old main residence within 3 years of the purchase. This is because there no condition requiring that the purchase of the new residence is not a replacement of main residence.
However, if the client’s transaction falls within para 6, then we will be able to make a reclaim of the extra 3% of SDLT.
On the bright side, whether the multiple dwelling
transaction falls within para 5 or para 6, we can consider whether making a
claim for multiple dwellings relief would be beneficial.[1]
[1] Reproduced with permission of Croner Taxwise