Higher power

In April 2016, the government introduced higher rates of stamp duty land tax (SDLT) for purchases if the purchaser already owns one or more dwellings. The higher rates are referred to as SDLT HRAD or just HRAD.

HM Revenue & Customs (HMRC) first published guidance on HRAD in March 2016. HMRC guidance is kept under continuous review, with policy officials working closely with colleagues who deal with customer queries by phone and letter, in order to understand how the new legislation and its related guidance are working. On a second front, HMRC works closely with external practitioners through the ‘Stamp Taxes Working Together’ forum to understand how things are working for professionals. As result of this liaison, HMRC identified a number of areas where new guidance would help. Having drafted some changes, HMRC then worked closely with forum members to ensure its new guidance would meet users’ needs.

In November 2016, HMRC published new guidance on HRAD. The new guidance contains an additional chapter 9. Chapter 9 is a direct response to demand for worked examples based on scenarios where practitioners, and analysis of customer contact, told us that customers needed more help to understand how the new rules worked.

HMRC is extremely grateful for the help provided by forum members.

What has changed

The new guidance includes a number of clarifications and some new material. Paying close attention to this revised guidance will enable practitioners to avoid misunderstanding and reduce the potential to make mistakes. The four key areas are detailed below.

Meaning of ‘dwelling’

Dwelling itself takes its normal meaning, while the legislation defines what counts as dwelling for HRAD at paragraph 17 of the new schedule 4ZA to the Finance Act 2003. As well as its normal meaning, ‘dwelling’ includes holiday and rental homes. It does not include purpose-built student accommodation, but would, for example, include accommodation the form of an ordinary house converted into bedsits in a university area and occupied by students.

Spousal connection rule

Paragraph 9 of the new schedule contains a spousal connection rule. In this context, spouse has its ordinary meaning and includes civil partners, but it requires that the spouses are living together.

In essence, the rule deems a purchaser to include the purchaser’s spouse if, in doing so, a transaction would become subject to higher rates. While examples 1 and 2 in chapter 9 of the new guidance deal with some common ‘spouse’ scenarios, this rule can also give rise to some unexpected outcomes. Say, for example, A and B are civil partners living together in a home owned by B. If A buys a property in his own right, A will be liable to HRAD (assuming the general conditions are met), because B owns another property.

Purchases consisting of more than one dwelling

The main benefit of this rule is that purchasers who are home-movers are not automatically charged the higher rate when they move and buy two properties. If their new home is treated as a single dwelling, the main residence disposal relief will cover the new purchase, even if it contains two dwellings.

The main condition is that one of the new dwellings is subsidiary to another. In this context, subsidiary is defined as being within the same grounds or building as the other (principle) dwelling, and counts for one-third or less of the consideration attributable to the purchase of both the subsidiary and principle dwellings combined.

The lease aspect of condition C

The lease aspect of condition C (paragraph 3(4) of the new schedule) has given rise to some questions.

This is a reference to an existing lease on the purchased property, and not to the purchase of a lease in its own right. For example, a purchase of a freehold house that comes with an existing lease of 25 years to someone other than the purchaser would fail to meet condition C, and would therefore not be subject to HRAD.

Looking ahead

Earlier, I mentioned that HMRC guidance is kept under continuous review, and that applies as much to this ‘new’ guidance as to any other. So please do let us know what you think of the new guidance, by email.