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  • Tax

    Higher rate SDLT on primary residence

    Hi

    I bought my first BTL early last year. Soon after my partner and I decided to separate. I am now in the process of buying her out of our family home.

    I instructed a solicitor to deal with the transfer of equity. Very late on in the process the solicitor informed me that I "may" have to pay sdlt. She wasn't  sure. Then to add insult to injury she later informed me that it would be at the higher rate as I was not replacing my primary residence. Which I am not, I am staying in my primary residence. I have googled endlessly and there is lots of contradictory info but my feeling is that she may be right and I do have to pay this unfair tax.

    If I sold my house and bought the one next door I would pay the lower rate. Is this correct/fair.

    Any help guidance greatly appreciated

    D

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    It’s a good question, First of all fair doesn’t come in to it. If you a replacing your personal private residence you don’t pay the 3 % loading on sdlt or you can claim it back within 3 years if you sell retrospectively but I guess you already know that.

    But you only pay the sdlt loading if you are buying an additional property which you are not which won’t be your ppr, this may be the first time this has come up with your solicitor so they are no doubt thumbing through their text books or not, so it may take a bit of leg work but my gut feeling is no loading on sdlt in this instance.

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    Is your partner named on mortgage or Land Registry as co owner of PPR?

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    OK - so you are buying an extra chunk of real estate - though the SD surcharge was designed ostensibly to reduce second home ownership/BTL.

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    If you are married and this is a settlement on divorce then there is relief from the additional 3%. It also applies for civil partnerships and couples living together.

    In addition Finance Act 2003 (the main SDLT enacting legislation) gave exemption from standard SDLT on separation.


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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    Thanks for the reples

    I had read on HMRC website that there were exemptions for divorce or dissolution of civil partnerships, neither of which apply.

    The only mention, i could find,of couples separating was if the property was being split. Could you direct me to  the appropriate info please

    Thanks

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    SDLT - FA03 Sch 3 (3)

    Additional 3% - FA18 Sch 11 which created a new clauses 9A & 9B

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    I don't believe either of those clauses apply in these circumstances.

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    Debbie Franklin

    Director of Tax Peplows Limited

    CTA ACA FCCA

    As much as I really would like Stuart to be right, I think Debbie probably is.

    I am not a tax expert but as i see it there are 2 questions

    1.  Is SDLT payable on  transfer of equity from my partner to  myself?
    2.  If it is should it be at the higher rate?

    For the first question my understanding is that it is payable. It wouldn't be if we were married or in a civil partnership. But the only mention of separating couples being exempt is if they are splitting the house, which we are not; I am buying her out. That feels unfair

    On the second question, it appears to me that the rules are so badly constructed that the higher rate is applicable, because I am not replacing my ppr. If as i hypothesised in the original post, I sold my home and bought an identical one next door i would pay the lower rate. That also feels unfair. I know I could sell within three three years and claim it back but i have no desire to move and I dont have the money to pay the SDLT now. 

    If anyone can provide the definitive answer I would be grateful

    Thanks

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    My answers to Derek's two questions above are:

    1. Is SDLT payable on the transfer of equity: Answer, yes it is. I agree that if he and his partner are not married or in a civil partnership etc the exemption from SDLT for transactions on connection with divorce etc could not apply. The SDLT charge would be on the "chargeable consideration" which in this case would include the price paid by Derek for the transfer and any mortgage liability "assumed". If the property is being transferred subject to a mortgage and they currently hold the property as joint tenants then he would in that event be deemed to assume liability for 50% of the mortgage.

    2. Will Derek be liable to SDLT at the higher rate? I note that Derek is acquiring his partner's interest in the "family home". If he occupies the property as his only or main residence then a relief from the higher rate may apply. However, the conditions for this relief are strict, see para 7A of Schedule 4ZA to Finance Act 2003. If those conditions are satisfied then the ordinary residential SDLT rates should apply.

    Marc.selby@laytons.com

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