If you have purchased a new residential property and now own multiple dwellings, find out whether or not you are eligible for multiple dwelling relief. Our property tax consultants have explained everything you need to know.
When does 3% Stamp Duty Land Tax Apply?
As per HM Revenue & Customs guidelines, if you have purchased a new property and aim to merge or amalgamate into your main residence to create a single dwelling, then you will not be eligible for multiple dwelling relief. HMRC argues that residence is not replaced in the aforesaid cases, and Stamp Duty Land Tax (SDLT) surcharge will be charged.
HMRC states that surcharge only applies to the “acquisition of the dwelling”, and to your surprise, the definition of a dwelling is different —each unique to the specific legislation. When it comes to surcharge legislation,the followingcounts as a dwelling for STDL surcharge purpose, if at the effective date:
- The building or part of the building is either used as a dwelling or suitable for use as a dwelling.
- Likewise, the building or part of a building will be considered a dwelling if it is in the construction or adaptation phase for such uses.
It is pertinent here to note that if you have bought a site or landto construct a dwelling, you are not entitled to an exemption. Neither will you be entitled to SDLT exemption if you have purchased a building that is not yet suitable to be converted into a dwelling at the effective date or work has not been initiated on it thus far for adaptation as a dwelling.
Exceptions – When Does 3% Stamp Duty Land Tax not apply?
HMRC does not apply a 3% Stamp Duty Land Tax if the new property “must become your only or main residence”.
It means that SDLT will not be applied if you have bought a new property to make it your main or only residence. Likewise, if you already own multiple properties but have bought a new one intending to make it your own residence, it will be exempt from the surcharge.
If you buy a new property and do not intend to make it your main residence, it means now you own multiple residential properties and therefore, Stamp Duty Land Tax Surcharge applies in such cases.
But for surcharge exemption purposes, your effective date of disposal of the main residence should be the same as that of purchasing the new property. If, on the day of purchase of new property, you do not dispose of your previous main residence, you will be liable to pay a 3% surcharge.
However, if you sell your main residence within 3 years of purchase of new property and make the latter your new main residence, then you will be eligible for a refund.
SDLT – Joint Purchase
If you are married, then HMRC considers your spouse as the purchaser, too. Now, if either of the spouses triggers the Stamp Duty Land Tax Surcharge on purchasing new property, the same applies to the whole transaction.
Let’s explain it with an example. Simon and Fiona are a married couple and Simon already has a main residence. Fiona decides to jointly buy a new property and make it their new main residence. Now, if Simon sells his previous main residence within the time limit, then the surcharge will be exempted. Else, it will be applicable as Simon has triggered the recharge.
Suppose unmarried couples jointly purchase a new dwelling with the purpose of making it their new main residence, and any of them does not dispose of their previous main residence. In that case, the surcharge will be applicable.
As you have seen, the rules regarding dwelling relief are quite complex, and you can often end up paying the surcharge if the rules are not properly followed. Therefore, it is always better to seek help from the tax advisorsat our firm.
Why IBISS & CO?
Through proper planning, our tax experts ensure that you pay an accurate and minimum amount of the SDLT by claiming all available reliefs.
You can find experienced property tax advisors, chartered accountants and inheritance tax experts at IBISS & CO. We have helped hundreds of clients save millions in tax legally; we can do the same for you. For an initial 15-Minute Free Consultation, reach out to us now.