My VIP Tax Team question of the week: SDLT issues on replacing main residence

My client has an existing main residence in London and has purchased a second residential property in Bedford with the stated intention of it becoming their new main residence. As a result of owning more-than one residential dwelling at the point of purchase they paid the 3% Stamp Duty Land Tax (SDLT) supplementary charge.
They only resided in the newly acquired property for 4 months before putting it on rent, and then returned to live in the London residence. They have now sold the first property and moved back into the second property: will they now be able to claim a refund of the 3% supplementary charge?

The purchase of an additional residential property for a consideration of £40,000 or more would be within the scope of the 3% charge, and the rules apply equally where only a part-shares of property with a value of £40,000 or more. The rules also take into account residential properties owned anywhere in the world for this purpose.

There is, however, relief available for a purchase as the replacement of your main residence, under FA 2003 Schedule 4ZA Para 3(6). SDLTM09800 outlines the main conditions but to summarise:

  • At the time of purchase, the new property was intended to be the purchaser’s main residence (para 3(7) (a)].
  • In the 3 years following the purchase of the new property, the purchaser must have disposed of a main residence [para 3(7) (b)]. HMRC has the discretion to extend the period upon the taxpayer’s application with an effective date no earlier than 1 January 2017 (para 3(7A) and FA 2020, s. 76(4)). This was intended to allow for some flexibility during the COVID-19 emergency.
  • The previous residence must have been used as their main residence at some point in the three-year period preceding the date of the purchase of the new property [Para 3(7) (c)].
  • Immediately after the disposal of the old property, neither the purchaser nor the purchaser’s spouse or civil partner had a major interest in the old property.

In your client’s case, it needs to be established whether the terms of occupation of the new property demonstrate sufficient intention to reside there with a degree of permanence.  HMRC’s guidance at SDLTM09812 includes the following commentary in this regard:

The test in respect of the new dwelling purchased is a question of intention: does the purchaser intend the dwelling to be his only or main residence? This is a question of intention at the time of purchase. What has the purchaser acquired the property for? The intention test will not only be met if there is an intent to immediately occupy: if some works are to be undertaken before occupation commences, or a short lease is in place before purchase, then this does not prevent the test from being met. If the dwelling is intended to be put to other uses, for example as a source of income, then the intention test will not be met. There may be rare cases of the purchaser’s genuine intention at the time of purchase being frustrated by events.”

The contentious point in your client’s case is the initial occupation of the property for only a short period, together with the prompt re-occupation of the first property. What were the circumstances for returning to the original property; for example, did your client lose their job and returned to their old employer in London until another job was found in Bedford? In such circumstances, I would be inclined to think there was a genuine intention to occupy the new property at the outset as their main residence. There is a parallel with the rules governing principle private residence relief for capital gains purposes (S222 TCGA 1992 onwards) and although they are different areas of taxation, the PPR rules provide an indication as to where HMRC might take their arguments in disputed cases.  At CG64455  Lord Widgery’s comments are quoted as follows: “It is imperative to remember in this context that ‘residence’ implies a degree of permanence… Consequently, a person is not entitled to claim to be a resident at a given town merely because he pays a short, temporary visit. Some assumption of permanence, some degree of continuity, some expectation of continuity, is a vital factor which turns simple occupation into residence “. Fundamentally, it is not about the quantity, but the quality of stay.

Did the taxpayer transfer all their belongings, change electrical register, change doctors and take all the other necessary steps that people typically take when changing their main residence? HMRC would be looking for such indicators to establish genuine intention. You will need to review the specific facts involved before you can reach a decision. If you determine that a refund is due, remember that this must be claimed within 12 months of the sale of the old property (para 3(7B)) – see SDLTM09809.

The higher rates of Stamp Duty Land Tax (SDLT) were introduced on 1 April 2016 and intended to apply to purchases of additional residential properties, such as second homes and buy-to-let properties. Similar rules apply under separate legislation in both Wales and Scotland. This query concerns SDLT but the comments will be equally relevant to purchases in Wales and Scotland although the specific rules may differ. Note that the Scottish equivalent additional rate is currently 4% (previously 3%) and for rest of the UK it is 3%. (Guidance covering the provisions that apply in Wales and Scotland  can be accessed here –  Revenue Scotland and here –  respectively).


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Tax Adviser
0844 892 2470

Kabita has worked in tax since 2005 and started her career at PwC before moving onto smaller private practices to gain a wider exposure of all areas of tax. Her client base has been mainly high network of individuals and sole traders/directors to prepare tax returns and to provide ad hoc advice to manage their tax affairs in the most tax efficient manner.

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