HMRC SDLT: SDLTM09800 – SDLT – higher rates for additional dwellings: Condition D – general – Para 3(6) Sch 4ZA FA2003

SDLT Higher Rates for Additional Dwellings: Condition D

This section of the HMRC internal manual discusses the principles and concepts related to the higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings, specifically focusing on Condition D as outlined in Paragraph 3(6) of Schedule 4ZA of the Finance Act 2003.

• Explains the criteria for higher SDLT rates on additional properties.
• Details the legislative framework under the Finance Act 2003.
• Provides guidance for HMRC staff on applying these rules.
• Clarifies the conditions under which higher rates are applicable.

Understanding Condition D for Higher Rates of SDLT on Additional Dwellings

What is Condition D?

Condition D applies when a person buys a new property and already owns, or is deemed to own, interests in two or more homes. Its aim is to ensure that if a person is replacing their main home under specific conditions, they won’t be charged higher stamp duty.

– Key Point: If at the end of the day of purchase the buyer has an interest worth £40,000 or more in just one home, you don’t need to worry about Condition D. The transaction won’t have a higher stamp duty rate because it doesn’t meet the requirements for additional dwellings.

The Definition of Main Residence

Condition D is focused on whether the newly purchased home is a replacement for the buyer’s only or main home. The definition of “main residence” is discussed in more detail in SDLTM09812.

Replacement Situations

The rules for determining if a home is a replacement vary based on whether the old main home is sold before or after the new one is bought.

1. Selling the Old Main Residence Before or on the Same Day as the New Purchase

In this scenario, Condition D will apply unless all the following five conditions are met:

– The buyer intends to live in the new property as their only or main home at the time of purchase. (See Para 3(6)(a))

– Within the last three years before purchasing the new property, the buyer (or their spouse/civil partner) must have disposed of a significant interest in another property (known as the ‘old property’). (See Para 3(6)(b))
– Note: Moving out of a job-provided accommodation or leaving a parental home does not count as disposing of a major interest.

– Right after selling the old property, the buyer and their spouse/civil partner had no major interest in the old property.

– The buyer must have lived in the old property as their only or main home at some point within the three years leading up to the new purchase. (See Para 3(6)(c))

– Between selling the old property and purchasing the new one, neither the buyer nor their spouse/civil partner should have acquired a major interest in another property that they intended to live in as their only or main home. (See Para 3(6)(d))

Important Notes on Tenancies and Disposals

– Leaving an assured shorthold tenancy counts only if the tenancy period exceeds 7 years.

– For Condition D, selling the old main residence does not have to happen through a sale; it could also be a gift or a transfer due to a divorce.

– If joint purchasers, who are not married or in a civil partnership, lived together in a property owned solely by one of them, only the owner can meet the main residence condition.

2. Selling the Old Main Residence After Buying the New One

In this case, Condition D will no longer apply if all four of the following conditions are met:

– The buyer intended to live in the new property as their only or main home at the time of purchase. (See Para 3(7)(a))

– Within three years of buying the new property, the buyer (or their spouse/civil partner) must have disposed of a major interest in another property (the ‘old property’). (See Para 3(7)(b))

– Immediately after the disposal of the old property, neither the buyer nor their spouse/civil partner should have owned a major interest in it. (See Para 3(7)(ba))

– The buyer must have lived in the old property as their only or main home at some point during the three years leading up to the purchase of the new property. (See Para 3(7)(c))

Changes Made to Rules on 22 November 2017

Before 22 November 2017, buyers didn’t have to sell their entire interest in a property. They could still qualify for Condition D if they had only sold part of it.

From 22 November 2017 onwards, both the buyer and their spouse or civil partner must fully give up major interests in the old property when it is sold.

Exceptions to the Three-Year Disposal Rule

When the sale of the old main home happens on or before the purchase of the new main home, if the new home is bought on or before 26 November 2018, both the three-year disposal rule and the three-year occupation rule are ignored. For example, see details in SDLTM09805.

Renting While Replacing a Main Residence

If a buyer ends up renting after selling their old property and before moving into the new one, this rental agreement will not impact Condition D, provided the tenancy is not for longer than 7 years.

Summary of Key Conditions for Condition D

– Ownership Test: The buyer must own, or be treated as owning, major interests in two or more homes by the end of the purchase day.

– Replacement Rules: The old residence must either be sold before or at the same time as the new one or sold after the new one is bought.

– No Higher Rates: If Condition D is met, purchasers may avoid paying higher stamp duty as the transaction is not considered for additional dwellings.

By understanding these conditions and examples, buyers can navigate the complexities of stamp duty more effectively.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09800 – SDLT – higher rates for additional dwellings: Condition D – general – Para 3(6) Sch 4ZA FA2003

View all HMRC SDLT Guidance Pages Here