Mind the gap? Replacement residence relief

Tom Lacey profile image

Tom Lacey, Tax Director

Tom trained at Smith & Williamson in Salisbury and went on to work for Dixon Wilson in London and then Moore Blatch solicitors before joining Wilkins Kennedy in June 2017.

Nov. 29, 2017

Following on from my earlier blog about replacement residence relief, there are some details relating to circumstances, which could make way for a tax claim.

Home buyers can be liable to the 3% SDLT surcharge if they sell their main residence prior to purchasing their new home if they also have an interest another residential property worth more than £40,000.  The interest in another residential property might be an investment property or a holiday home.

The liability to pay the 3% SDLT arises as on the completion day of purchasing the new home the buyer also has an interest in another residential property and therefore meets the criteria to pay the extra 3% SDLT.

Here is an example to consider:

Bob owns his home in Battersea and a holiday home in Devon.  He decides to take a career break and sells his home to go on a two year trip to South America.  On his return to the UK, Bob takes up a job in Reading and purchases a new home nearby for £400,000.  Bob is alarmed to learn that he will have to pay the 3% SDLT surcharge on the buying his new home due to his ownership of the holiday home in Devon.  This will cost him an extra £12,000 in tax.

There is relief available in the legislation to help Bob and prevent him paying an extra £12,000 of SDLT.

The relief exempts the purchase of the new home from the 3% SDLT surcharge if all the following conditions are met:

  • The purchaser has disposed of another dwelling
  • The dwelling was disposed of within 3 years of the purchase
  • The dwelling was the main residence of the purchaser at some time in the three year period prior to the purchase of the new home.

In Bob’s example above he meets all three conditions and will not have to pay to the 3% SDLT surcharge.

Would the relief be available if Bob had rented a flat in the UK prior to purchasing his new home?  Yes, in these circumstances Bob would still be entitled to relief.

Does the position would change if Bob had purchased a flat in South America which he used as his home whilst on his travels?  In this case the relief would still be allowable as the flat in South America is not liable to SDLT.

However, the relief would be lost if Bob had purchased a flat in Reading which he used as a residence whilst looking for his final home.  The relief only applies to the first purchase of a new home following the sale of the original main residence.

There is an extension of the time allowed between the sale of the old main residence and purchase of the replacement if the new home is purchased before 18 November 2018.  For purchases before this date there is no restriction on how long ago the previous main residence was sold – that is the previous main residence can be sold more than 3 years prior to 18 November 2018.

The relief will normally be claimed on the SDLT return submitted for the purchase of the new home.  If it is not and the 3% SDLT surcharge is paid then an amended SDLT return can be submitted within 12 months of submitting the SDLT return.

Every individual circumstance will differ and we would always recommend seeking advice, tailored to your own particular circumstances from the tax team at Wilkins Kennedy. Contact us today to see how we can help.

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