Buying a house or a flat when you already own one became a lot more expensive on April Fool’s Day 2016; when SDLT surcharge rates were introduced. For example, Alex buys a flat for £500,000 in December 2017; but he already owns a half share in his late grandmother’s flat, which he inherited in 2013. So Alex’s SDLT bill is £30,000 in SDLT. In contrast, Millie, who buys the flat next door for the same price, doesn’t own all of or a share in any other houses or flats. She only pays SDLT at normal non-surcharge rates. Her liability is a mere £15,000.
There’s a relief from the surcharge element available to those who sell their old home and buy a new one. But, to qualify for it, the sold former home must have been the buyer’s “only or main residence” and the buyer must intend the new home to be their “only or main residence”. The phrase “only or main residence” is not defined in the legislation. HMRC’s guidance says that a purchaser can only have one main residence. If someone has two or more, it’s a question of fact which is the one and only main residence. Owners with more than one home cannot decide for themselves which is to be treated as their main residence. This blog refers to someone’s “only or main residence” as their “main residence” and to replacement of main residence relief as “RMRR”
There are two “legs” to claiming RMRR:
selling the former main residence
buying a replacement for it, intending to use the new home as one’s main residence.
Thus, if (a) Alex sells his previous main residence on the day he buys the new flat and (b) intends the new flat to be his new main residence, Alex can claim RMRR and pay only £15,000 in SDLT, despite still owning the share in his late grandmother’s flat.
But what would have happened if Alex had sold his former main residence, say, four years earlier when he was posted to Los Angeles? Can he still claim RMRR when he buys the new flat on his return?
The answer is: yes, he can, as the law presently stands. Currently, it doesn’t matter how long ago Alex sold his previous main residence. If Alex sold it in 2007, he could still use that sale as the sale “leg” of his RMRR claim in relation to a purchase in December 2017. There’s an important condition, Alex must not have owned, either freehold or under a lease for longer than 7 years, another main residence in the interim.
But – and this is the main point of this blog – that rule will cease to apply at midnight on Monday 26th November 2018, i.e. in a little over a year’s time. For purchases that happen on or after Tuesday 27th November 2018, RMRR can only be claimed if the former main residence was sold within the previous three years. If Alex were to buy his new flat on Friday 23rd November 2018, the sale of his previous main residence in 2007 will still count as the sale “leg” for an RMRR claim. But if Alex’s purchase only completes on Wednesday 28th November 2018, the 2007 sale will no longer qualify as the sale “leg”. Alex won’t qualify for RMRR and will have to pay surcharge rate SDLT on his purchase of the flat.
The slightly over-simplified moral of the story is this:
if you completed the sale of your previous main residence on or before 25th November 2015
if you haven’t owned another main residence since then either freehold or under a lease for longer than seven years, and
you either now own (or intend, before buying your next main residence to acquire) a second dwelling, which is not (or not to be) your main residence;
You need to be aware that your ability to claim RMRR on the purchase of a new main residence will run out unless your complete its purchase on or before Monday 26th November 2018. Moreover, if you think the purchase of your next main residence will take place only shortly before the deadline runs out, you should be aware that even a short delay in completing may have expensive consequences.
Let us imagine that completion of Alex’s purchase is fixed for Friday 23rd November 2018, just in time to allow his 2007 sale to qualify as the sale “leg” of an RMRR claim. But one of the sellers is unexpectedly out of the country and not available to sign the transfer. The transaction actually completes on Wednesday 28th November, once the missing seller is back in the UK and has signed the transfer. The sellers’ default and the resulting five day delay have doubled Alex’s SDLT liability and cost him £15,000 more in SDLT than he’d budgeted for.
Of course this blog reflects the SDLT law and rates as they are in early October 2017. The Autumn 2017 Budget on November 22nd may change them.