There are just so many things to deal with in the run up to the Happy Day. The Finance Bill 2016 has added another item to that already long list, which is none the less important for being prosaic – Stamp Duty Land Tax. Of course, couples where neither already owns a dwelling can ignore this and concentrate on more romantic things. But couples of whom either or both has the misfortune to own a dwelling should be aware that a little forward planning may save them both a lot of Stamp Duty Land Tax. Whether or not such a happy couple will pay the new and very expensive surcharge SDLT rates (about which please see my earlier blogs) on the purchase of their new matrimonial home can depend on:
- whether or not they were married when either or both of them bought it;
- whether or not they were married when one of them sold a previous home; and
- where they both lived before they got married.
Where you married when… ?
Mr. P. Charming, who owns no other property, and Ms. Cindy Rella plan to get married and to buy a new home jointly. Before she met Mr. Charming, Ms. Rella inherited her late godmother’s home which she has let. She intends to sell it to raise her share of the cost of their new home. In the meantime, Mr. Charming alone will buy it. If they get married before he buys it, Mr. Charming will pay surcharge SDLT rates on the purchase, because his wife’s ownership of her godmother’s home is attributed to him for surcharge purposes, even though he’s the only purchaser. But if he buys it on his own before they get married, she isn’t his wife when he buys it. Her ownership of godmother’s home is not attributed to him. So he only pays SDLT at normal rates.
It’s vital that Ms. Rella (now Mrs. Charming) doesn’t buy her share of the new home from Mr. Charming before she sells her godmother’s old home. If she does, she’ll own (or have a share in) two properties on the day she buys her share of the new home. This means she’ll have to pay SDLT at surcharge rates on what she pays Mr. Charming. If she ensures that, by close of play on the day she buys in, she’s already disposed of her godmother’s old home; she only owns one property (her share in the new home) and pays SDLT at the normal rates. Fortunately Mr. Charming’s remaining interest in their new home isn’t attributed to her (because it’s the same property, not a different one) and thus doesn’t count as her owning another property.
But what if, in the interim between him buying the new home and Mrs. Charming buying in, Mr. Charming acquired a buy-to-let investment at a very advantageous price from the Misses Uggleigh (yes, they are sisters), who had an urgent need for expensive foot surgery? Now Mr. Charming does own another property when Mrs. Charming buys her share. His ownership of that is attributed to her because they are married, so she must now pay SDLT at the surcharge rates on her purchase from him.
Were you living together when…?
Shrek owns his own home and a buy-to-let investment flat. Princess Fiona owns her late father Harold’s palace, which she rents out and which, despite its enormous size, qualifies as a dwelling for SDLT purposes. She lives in a flat which she rents from Donkey. In April 2016, Shrek sells his home and moves in with Princess Fiona. In August 2017, they jointly buy their new home. Shrek is entitled to replacement of main residence exemption because he sold his former main residence within the three previous years. So his ownership of the investment flat does not count. But Princess Fiona cannot claim replacement of main residence relief, because she hasn’t sold a previous main residence. Thus her ownership of her late father’s palace results in both of them having a liability to surcharge rate SDLT.
If Princess Fiona had (a) moved in with Shrek (so that his house became her main residence) and (b) married him, before he sold his home, both of them could have claimed replacement of main residence exemption based on his April 2016 sale. They would have saved themselves the difference between SDLT at normal rates and SDLT at surcharge rates. If their new home costs £450,000, the normal rate SDLT liability is £12,500. Surcharge rate liability is £26,000; more than twice as much.
What is said about spouses applies equally to civil partners. The moral of the story is that, if you want to get married or get registered as civil partners and either or both of you own a holiday home, a buy-to-let property or some other dwelling, make sure you take an early sip of magic potion from the bottle labelled “SDLT advice”, if you want to live happily ever after.