SDLTM09800 - SDLT - higher rates for additional dwellings: Condition D - general - Para 3(6) Sch 4ZA FA2003
Condition D will only be of relevance if at the end of the day of purchase, the purchaser owns, or is treated as owning, a major interest in two or more dwellings. Its purpose is to ensure that replacing a main dwelling, in certain circumstances, is not a higher rates transaction even where the purchaser owns multiple dwellings.
If at the end of the effective date of transaction the purchaser only owns an interest worth £40,000 or more in only one dwelling, there is no need to test if condition D applies. If no interest in any other dwelling is owned, then one of conditions A-C will already have been failed so that the transaction cannot in any circumstances comprise a higher rates transaction on account of that purchaser's circumstances.
Condition D is that the purchased dwelling is not a replacement of the purchaser’s only or main residence [Para 3(5)]. The definition of “main residence” is considered in more detail at SDLTM09812.
The detailed rules vary slightly, depending on whether the `old` main residence is sold before or after buying the new main residence.
However, the replacement test can only be met by disposing of a previous main residence owned by the purchaser or the purchaser’s spouse or civil partner. The replacement test in the legislation is a replacement in terms of ownership, and not only in terms of occupation.
Old main residence sold before or on the same day as the new main residence is purchased
In this first situation Condition D will be met unless all of the following 5 conditions are met: -
- At the time of purchase of the new property, the purchaser intends to live in the new property as the purchaser's only or main residence [Para 3(6) (a)].
- In the three-year period preceding the purchase of the new property, the purchaser (or the purchaser's spouse or civil partner at the time) must have disposed of a major interest in another dwelling (the "old property") [Para 3(6) (b)]. Leaving employer provided accommodation or a parental home does not count as a disposal of a major interest in a previous main residence for the purposes of Condition D. This is the three-year disposal rule.
- 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.
- The purchaser must have lived in the old property as the purchaser's only or main residence at some point in the three-year period preceding the date of the purchase of the new property [Para 3(6) (c)]. This is the three-year occupation rule.
- At no point between selling the old property and buying the new property had the purchaser (or the purchaser's spouse or civil partner) acquired a major interest in another dwelling with the intention of the purchaser living in it as the purchaser's main or only residence [Para 3(6) (d)].
Leaving an assured shorthold tenancy will not count as a disposal unless the tenancy was granted for a period of more than 7 years. Equally, for Condition D, such a tenancy taken between the sale of the old property and purchase of the new property will be ignored so long as it is not granted for a term of more than 7 years.
For the purpose of condition D, the disposal of the previous main residence does not have to be by way of sale, although that is likely to be the case for most individuals. For example, the property may have been gifted to someone else or transferred under a court order as part of a divorce settlement.
Where joint purchasers (who are not spouses/civil partners) previously lived together in a property owned by only one of the joint purchasers, the disposal of this previous property will only meet the “replacement of main residence” condition for the previous owner, and not for the purchaser with no ownership interest in the “old” property.
Old main residence sold after the new main residence is purchased: -
In this second situation, Condition D will cease to be met if the following 4 conditions are all met:
- At the time of the purchase of the new property, the purchaser intended to live in the new property as the purchaser's only or main residence [Para 3(7) (a].
- In the three-year period following the purchase of the new property, the purchaser (or the purchaser's spouse or civil partner) disposes of a major interest in another dwelling (the "old property") [Para 3(7) (b)]. In exceptional circumstances the three-year period may be extended - see SDLTM09807.
- 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 [Para 3(7) (ba)].
- The purchaser must have lived in the old property as the purchaser's only or main residence at some point in the three-year period leading up to the date of the purchase of the new property [Para 3(7) (c)].
Purchases before 22 November 2017
The rules were changed on 22 November 2017. Before this date, it was unnecessary for the purchaser to have disposed of the whole of their major interest in the sold dwelling. A purchaser could have disposed of only part of their major interest and still not have met Condition D.
For disposals on or after 22 November 2017 there is a requirement that neither the purchaser, nor the purchaser’s spouse or civil partner, retained a major interest in the old property following the disposal.
Exception to the three-year disposal rule
[Para3 (6)]
Where the sale of the old main residence took place before, or on the same day, as the purchase of the new main residence and the purchase of the new main residence occurred on or before 26 November 2018, the three-year disposal rule and the three-year occupation rule (above) are both ignored.
See example at SDLTM09805
Renting while replacing a purchaser’s only or main residence
An assured shorthold tenancy taken between the sale of the old property and purchase of the new property will be ignored so long as the tenancy is not granted for a term of more than 7 years.