Tax Question Of The Week: Additional Interest Acquired In Main Residence

Tax Question Of The Week: Additional Interest Acquired In Main Residence

Q- An unmarried couple are separating after many years together, as part of the separation my client has agreed to buy her partner’s joint interest in the family home for £300,000. Will Stamp Duty Land Tax be payable on this acquisition, and if so, as she also owns a rental property, will the additional 3% rates apply?

A- Finance Act 2003, Schedule 3, Paragraph 3A provides an exemption from SDLT on transactions made in connection with the ending of a marriage or civil partnership. As the couple never married, this exemption will not apply and SDLT will be due on the £300,000 consideration paid by your client to acquire the joint interest from her ex-partner.

Legislation at Schedule 4ZA of Finance Act 2003 contains provisions for SDLT rates to be increased by 3% for the acquisition of additional dwellings. Generally, these rules apply to a transaction if the purchaser has an interest in more than one dwelling unless the property acquired is replacing a main residence that has been, or will be, disposed of in the period 3 years before and 3 years after the acquisition. In this instance, your client does own more than one residential property, but she has not disposed of her main residence, and so it would appear that the 3% additional rate would apply.

However, Finance Act 2018 brought in some minor amendments to provide relief to higher rates of SDLT in certain circumstances. One of these covers the situation where a purchaser adds to their interest in their current main residence.

As such, with the exception of a leasehold interest with less than 21 years to run or a joint interest of less than 25%, transactions after 22 November 2017 will not fall within the higher rate rules if:

The purchaser had a prior interest in the purchased dwelling immediately before the date of the transaction, and

The purchased dwelling had been the purchaser’s only or main residence throughout the period of three years ending with the date of the transaction.Therefore, provided the property in question has been your clients only or main residence throughout the last three years, although SDLT will be payable, the additional 3% higher rate will not apply.

Ref: Higher rates for additional dwellings – FA 03, Sch 4ZAParagraph 7A inserted in FA 03, Sch 4ZA by FA 18 with effect in relation to any land transaction of which the effective date is, or is after, 22 November 2017.HMRC guidance – SDLTM09814

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