Q I own two properties in Scotland that I have rented out for years. My wife and I bought a house in Cornwall in 2009 and sold it this year in April to move to Devon, where we have been renting and looking for a house to buy. Now we have found somewhere, two solicitors have told us that we will have to pay an extra 3% stamp duty because I own the two properties in Scotland. This amounts to £10,440 instead of £2,750.
I have been told that it can be claimed back later. This seems an unnecessary process and I can’t feel secure that I will get it back. The extra £7,690 is a considerable amount and would go a long way towards any alterations that we will have to do to the house.
Is it true that we will have to pay the extra 3%? We are effectively changing one main residence for another. Does it count against us that we rented in between? Is the five-month gap relevant? All help will be gratefully received, especially as our solicitors don’t seem very sure themselves. JS
A I think I may have some good news for you, along with some (not very) light reading for those solicitors you have been talking to, in the form of HM Revenue & Customs (HMRC) Guidance Notes “Stamp Duty Land Tax (SDLT): higher rates for purchases of additional residential properties” published in March 2016.
This confirms the government’s decision that “purchasers with more than one property [like you] who dispose of a main residence have 36 months [up from the 18 proposed in the consultation] to buy a new residence before the higher rates apply”. In the later HMRC guidance notes, this translates as “higher rates will apply if the dwelling being purchased is not replacing the purchaser’s only or main residence”.
In your case, the new property in Devon is replacing your previous main residence in Cornwall, so you don’t have to pay the higher rates even though you have the two rental properties in Scotland.
To test this, I used the SDLT calculator recommended by the guidance notes and it applied the normal SDLT rates to a notional purchase of £400,000 after I answered yes to the questions: “Will the purchase of the property result in owning two or more properties?” and: “Is the property being purchased replacing your main residence?”. Had I answered no to that last question, the higher rates would have been charged, but a rebate would have been available as long as the main residence not yet sold was sold within three years of buying the new one.
The guidance notes also answer your question about renting and the five-month gap, inasmuch as they say: “Renting a new main residence in the time between disposal and purchase will not prevent the purchase from being a replacement of a main residence unless the period of tenancy agreed is more than seven years.” The FAQs at the end of the guidance notes (Q12 in particular) are also very helpful.
