SDLTM09810 - SDLT - higher rates for additional dwellings: Condition D - further examples

Example 1

Mr and Mrs S, a married couple, each own a residential property, with neither having any interest in the other’s property. They both live in the property owned by Mrs S; the property owned by Mr S is rented out. Mrs S is selling her property and they are jointly purchasing a new one, which will be their new main residence. Mr S will retain his rented out property.

Looking at conditions A to D: -

• The chargeable consideration is £40,000 or more and the interest is not subject to a lease, so conditions A and B are met for the major interest purchased.

Conditions C and D relate to the purchaser.

• Condition C is met by Mr S – he owns a major interest in another dwelling. Mrs S does not meet condition C as she does not own a major interest in another dwelling.

So we look at condition D for Mr S. We do not need to consider condition D for Mrs S as she has already failed condition C. The new property is replacing Mr S’s only or main residence, as the test is passed if the previous main residence which is sold belonged to the purchaser or their spouse or civil partner. The replacement test is failed for Mr S and so the transaction is not a “higher rates transaction.”

The higher rates will not apply to the joint purchase by Mr and Mrs S of a new main residence. As they are married and have both lived in the property owned by Mrs S as their main residence Mr S will treated as replacing their main residence. Mrs S only owned one property at the end of the day of the transaction.

However, if Mr and Mrs S had not previously lived together in Mrs S’s old house, condition D would not be met for Mr S as the old house would not be his previous main residence, and the transaction would comprise a “higher rates transaction.”

Example 2

Mr P and Ms B, who are not married to one another, each own a residential property, with neither having any interest in the other’s property. They both live in the property owned by Ms B: the property owned by Mr P is rented out. Ms B is selling her property and they are jointly purchasing a new one, which will be their new main residence. Mr P will retain his rented-out property.

As in example 1, conditions A and B relate to the interest purchased and are met.

Condition C is met by Mr P as he owns another property on the day of purchase. Ms B does not meet condition C, but it is only necessary for one purchaser to meet the tests for the transaction to comprise a higher rates transaction.

So, we look at condition D. Ms B fails this test as she is replacing her main residence, but Mr P passes this test as he is not replacing his main residence. Although he lived in the house previously owned by Ms B he had no interest in it and as they are not spouses/civil partners he is not treated as disposing of his main residence by virtue of Ms B disposing of it.

So, in this example the transaction is a higher rates transaction.

The higher rates will apply to the joint purchase of a new main residence by Mr P and Ms B. As they are not married (or in a civil partnership) Mr P will not be treated as replacing his main residence as, even though he has been living in the property owned by Ms B, he has no interest in the property Ms B is selling.

Example 3

Mr T owns both a main residence and a buy-to-let property. He is in the process of purchasing a new main residence. He intends to keep his current main residence and rent it and sell his buy-to-let property, although the sale may not take place until after the purchase of his new property.

The higher rates will apply to the purchase of the new property as following the purchase:

Mr T will own an additional residential property and is not replacing his main residence; and

Mr T will not be able to claim a refund when he sells his current buy-to-let property as refunds are only available where a previous main residence has been replaced.

Example 4

Ms G currently owns two buy-to-let properties, which she has owned for a number of years. She sold her previous main residence six months ago and moved temporarily into one of her buy-to-let properties, whilst looking for a new main residence. She buys a new main residence, moves into it and rents out her buy-to-let property to tenants again.

Ms G will be treated as replacing her main residence if the property she sold six months ago was her only or main residence and she lived in it as her only or main residence at some time in the past 3 years. The fact that she lived in one of her buy-to-let properties in the interim period does not affect this.

Example 5

Mr & Mrs C currently own a mixed residential and non-residential property, a shop with a flat above, both of which are rented out. They have lived for over three years in rented accommodation but are in the process of purchasing a new property which will be their main residence.

The higher rates will apply to the purchase by Mr and Mrs C as they already own an interest in another residential property: the flat above the shop.

Example 6

Ms D currently owns two residential properties – her main residence and a 25% share in a second property that she owns jointly with 3 friends, each having a 25% share in the property valued at over £40,000. Ms D now wishes to purchase one of her friend’s 25% share in the jointly owned property.

The higher rates will apply, as Ms D will be purchasing a major interest in a property, is not replacing her main residence and owns an interest in another property. She has not lived in the property for the last three years to be able to rely on the rule explained at SDLTM09814 (adding to existing interests) and illustrated in Example 7 below.

Example 7

Miss L owns two residential properties – a buy-to-let, and a 50% share in a property that she owns jointly with her sister. The jointly owned property is her main residence, and she has lived there for the last three years. She is considering purchasing the remaining 50% of her main residence from her sister.

For purchases before 22 November 2017, the higher rates would apply as Miss L is purchasing a major interest in a residential property, is not replacing her main residence and owns an interest in another residential property.

For purchases on and after 22 November 2017, the higher rates would not apply as Miss L’s transaction will be disregarded because she is increasing her interest in her main residence - see SDLTM09814 for conditions. [Para 7A].

Example 8

Mr and Mrs X jointly own two properties; they live in one as their main residence and rent the other out. Mr X is transferring his share in their main residence to his wife, who will take over sole responsibility for the mortgage.

On such a transfer before 22 November 2017, the higher rates would have applied as Mrs X owned an interest in another residential property and was not replacing her main residence. The higher rates would have applied to the value of the existing mortgage taken over by Mrs X.

On such a transfer on and after 22 November 2017, the higher rates do not apply as Mrs X’s transaction will be disregarded because she is purchasing solely from her spouse - see SDLTM09820 or conditions. [Para 9A].

Example 9

Ms Q is purchasing the house next door to her current home, which she intends to merge with her current home.

The higher rates will apply as following the purchase Ms Q will own an additional residential property and is not replacing her main residence. A refund of the higher rates cannot be claimed once the work to merge the two properties is complete as refunds are only available where a previous main residence has been disposed of. In this example the previous main residence is still owned in an altered form.

Example 10

Mr E owns two properties, both flats: he lives in one and rents out the other. He is currently in the process of extending the lease on his main residence.

On the purchase of such a lease extension before 22 November 2017, the higher rates would have applied as Mr E is purchasing a major interest in a residential property, is not replacing his main residence and owns an interest in another residential property.

On such a purchase on or after 22 November 2017, the higher rates will not apply if Mr E is increasing his interest in his main residence and also meets the relevant conditions - see SDLTM09814 for those conditions. [Para 7A].”

Example 11

Mr K currently owns one buy-to-let property and is in the process of purchasing another one. He lives in rented accommodation. He may consider selling one of the properties within the next couple of years.

The higher rates will apply to the purchase of the second buy-to-let property as following the purchase Mr K will own an additional residential property and is not replacing his main residence. A refund will not be available if Mr K subsequently sells one of his buy-to-let properties as a refund is only available where a main residence has been replaced.