Two Common SDLT Questions Answered
As a solicitor and tax specialist, I deal with a whole range of Stamp Duty Land Tax issues. SDLT has become more and more complicated since it came in in December 2003 and the introduction of the 3% surcharge last year has added to the complexity.
I regularly publish SDLT questions and answers on my website and, as a result, am able to assess which queries are the most read based on the number of views. I’d like to share two SDLT queries which are currently the most read on the SDLT Q&As section of my website
The first query relates to the 3% surcharge, in particular, how the surcharge applies to a married couple who are replacing a home that it is not owned by both of them. A detailed look at the question follows:
“A husband and wife have lived in a family home (that they do not own) as their main residence for several years. The wife has a share in another property with her sister. They are now moving although the new house will still be in the husband’s sole name. At first glance, the higher rates may not appear applicable as he only has the one property. However, the rules on married couples bring his wife’s property into the equation.
The wife is also replacing her main residence in reality, i.e. moving home, but as she is not on the title to the family home, there may be some doubts if she qualifies. All the notes from HMRC talk about ‘the purchaser’ but the wife is not purchasing. The husband has stated that his wife has no beneficial interest in the family home – although I suspect the divorce courts would say different!
Common sense suggests the higher rates should not apply but that’s not much reassurance.”
“You are right regarding the rules bringing the wife’s property into the equation. Where one party to a marriage (or a civil partnership) is a sole purchaser and the parties are ‘living together’ (applying the test in section 1011 ITA 2007) on the effective date of the purchase of a dwelling (normally completion) the tests for the 3% surcharge are applied to both parties individually even though one is not a purchaser and has no interest in the property. If one is caught the surcharge applies. However here the replacement of only or main residence exemption will apply to both (even though the wife has no interest in the one that is sold) as:
(1) She intends the new house to be her only or main residence;
(2) Her spouse will have sold a dwelling which had been her only or main residence.”
The second query relates to divorce and the SDLT consequences in relation to the transfer of a property. The question is:
“A divorcing couple own their home and the mortgage is still outstanding. The wife wishes to remain in the home. The wife has a second home that she solely owns. This second home has no mortgage and is let to friends and family from time to time. The wife is thinking about transferring this property to her husband.
What is the SDLT position if the property is passed from wife to husband before they are divorced? It is assumed that if the property were given post-divorce, the husband would certainly pay stamp duty and the 3% surcharge if he were still associated to the former marital home (FMH). Another assumption is that he could reclaim the higher SDLT paid within three years, if he were removed from the FHM title and mortgage.”
“A transaction between one party to a marriage and the other is exempt from the charge to SDLT if it is carried out:
1) in pursuance of an order of a court made on granting in respect of the parties a decree of divorce, nullity or judicial separation;
2) in pursuance of an order of a court made in connection with the dissolution or annulment of the marriage, or the parties’ judicial separation, at any time after the granting of such a decree;
3) in pursuance of:
- an order of a court made at any time under section 22A, 23A or 24A of the Matrimonial Causes Act 1973; or
- an incidental order of a court made under section 8(2) of the Family Law (Scotland) Act 1985 by virtue of section 14(1) of that Act; or
4) at any time in pursuance of an agreement of the parties made in contemplation of or otherwise in connection with the dissolution or annulment of the marriage, their judicial separation or the making of a separation order in respect of them.
In any other case, the normal SDLT rules will apply. Some pointers:
- Will this be an exchange? If so, the consideration will be the market value of the interest acquired in each case.
- Wife’s acquisition of husband’s half share in FMH is likely to be a higher rates transaction unless she disposes of her interest in the second property to husband first.
- If husband’s acquisition of interest in second property takes place before his disposal of interest in FMH that is likely to be a higher rates transaction with SDLT paid reclaimable if second property ‘becomes a replacement’ for FMH within three years”
I hope the above queries are useful and demonstrate the manner in which SDLT is applied. Every enquiry I receive is different and the smallest fact can have a bearing on the advice that is provided. Therefore it is important to note that the above information is intended for guidance purposes only and does not constitute legal advice. You should always seek specific legal advice on a transaction before entering into it as mistakes can be costly.