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SDLT: Exploring Ethical Approaches to Reduce Charges on Property Transactions

By admin
24 Jan 2024
Manage Tax Risk

Stamp duty land tax (SDLT) is a tax payable by the purchaser on land transactions in England and Northern Ireland.

I recently stumbled across a forum question on “ethical” ways to reduce the charge to SDLT on the purchase of a property.  In the scenario posed, the husband had transferred a 50% interest of his main residence to his wife following their marriage.  They are now looking to acquire a holiday home and are concerned that they will have to pay the 3% surcharge for “additional properties”. 

Putting aside the question of the ethics behind reducing a potential charge to tax (members of CIOT are bound by a strict code of professional ethics), particularly in light of the resurgence of media interest in the Loan Charge, the question prompted me to look again at the relevant legislation (always a fascinating prospect). 

The legislation (Schedule 4ZA FA2003) states that a transaction will be a “higher rates” transaction if the purchaser is an individual acquiring a major interest in a single dwelling and all of the following conditions are met: 

  1. The chargeable consideration is £40,000 or more; 
  1. On the effective date of the transaction, the purchased dwelling is not subject to a lease (or has an unexpired lease term or less than 21 years); 
  1. At the end of the day on the effective date of the transaction, the purchaser has a major interest in a dwelling (other than the one being purchased) to which points one and two also apply; and 
  1. The purchased dwelling is not a replacement for the purchaser’s only or main residence.  

Where there is more than one purchaser, the above conditions are applied to each of them separately.  The husband and wife will therefore be subject to the higher rates. 

But what, the question posed, if the wife were to first transfer her interest in their main residence to her husband and acquire the holiday home in her sole name?  They would of course have to argue that she is replacing her main residence and whilst it’s not unheard of that married couples will have separate main residences, it is unusual and substantive evidence would need to be produced should HMRC enquire into the use and occupation of the holiday home.  Even if they both argue the purchased property is their new main residence, HMRC would be likely to scrutinise the continued use of the existing property – have they really ‘replaced’ their previous home? 

The question goes on to ask whether the wife could also be considered a first-time buyer.  Again, the legislation (Schedule 6ZA FA2003) is very clear here: 

  1. Relief may be claimed for a chargeable transaction if the following conditions are met: 
  1. The main subject matter of the transactions consists of a major interest in a single dwelling; 
  1. The relevant consideration for the transaction is not more than £500,000; 
  1. The purchaser, or (if more than one) each of the purchasers, is a first time buyer who intends to occupy the purchased dwelling as their only or main residence; and 
  1. The transaction is not “linked” to another land transaction (unless it forms part of the garden or grounds of the purchased dwelling). 

Again, we are faced with the point that the couple would have to argue the main residence point, but the definition of “first time buyer” throws up an interesting consideration.  I person will be considered a “first-time buyer) if they: 

  1. Have not previously been a purchaser in relation to a land transaction the main subject matter of which was a major interest in a dwelling; 
  1. Have not previously acquired an equivalent interest in a dwelling situated in a country or territory outside England, Wales and Northern Ireland, or a fee simple in a dwelling situated in Wales. 

For a dwelling situated outside England, Wales and NI the person simply has to have “acquired” an interest, whereas within those jurisdictions they must be a “purchaser”.  Perhaps something for the taxpayer to ponder after all although they would still have the issue of the new property having to become the main residence. 

As with most UK taxes, SDLT is “self-assessed” meaning the taxpayer is responsible for ensuring the accurate calculation of the liability and whilst an advisor may be sought to provide clarity, the taxpayer needs to satisfy themselves that they are making accurate declarations to HMRC. 

To read another article on SDLT click here

How SDLT is effected by the autumn statement read this article

This article on SDLT was written by Cate Jackson. If you have questions regarding SDLT or any other property tax related issues she can be contacted here

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