HMRC SDLT: SDLTM09814 – SDLT – higher rates for additional dwellings: Adding to or changing existing interests – Stair-casing, leasehold enfranchisement – Para 7A Sch 4ZA FA2003
Principles and Concepts of SDLT Higher Rates
This section of the HMRC internal manual focuses on the higher rates of Stamp Duty Land Tax (SDLT) applicable to additional dwellings. It covers specific scenarios such as stair-casing and leasehold enfranchisement under Paragraph 7A Schedule 4ZA of the Finance Act 2003.
- Explains SDLT higher rates for additional properties.
- Details on stair-casing and leasehold enfranchisement.
- Guidance based on Paragraph 7A Schedule 4ZA FA2003.
- Intended for HMRC internal use.
Higher Rates of Stamp Duty Land Tax and Changes to Existing Interests
The Higher Rates of Stamp Duty Land Tax (SDLT) usually apply when you buy an additional property. However, there are cases where these higher rates do not apply, particularly when someone makes changes to their current major interest in a dwelling. This is covered under SDLTM09814 – SDLT – higher rates for additional dwellings: Adding to or changing existing interests.
What Is a Major Interest in a Dwelling?
A major interest in a dwelling typically refers to ownership rights that someone has over a residential property. This could include fully owning a house or holding a long lease on a flat. The key point is that changes made to this ownership may not always incur higher SDLT if certain conditions are met.
When Do the Higher Rates Not Apply?
There are specific conditions under which the higher rates of SDLT do not apply to changes made to existing interests in a dwelling. Let’s take a more detailed look at these conditions:
1. Primary Residence Requirement
- The property must have been the purchaser’s only or main home for the entire three years before the change transaction takes place. This is found in Para 7A(1)(b).
This means that if you have lived in the property as your main home for three years, you could be eligible for relief from the higher rates when you make changes to your interest in that home.
2. Leasehold Properties
- If you are making changes to a leasehold property, the existing lease must have at least 21 years remaining on it. This is stipulated in Para 7A(2)(b).
This condition is crucial for leasehold properties. If your lease is shorter than 21 years, the higher rates may apply even if you meet other conditions.
3. Joint Tenants
- In cases where the property is held as joint tenants, the purchaser must be entitled to at least 25% of the existing interest. This is explained in Para 7A(3)(b).
This means if you share the ownership with others but own at least a quarter of the property, you could potentially avoid the higher SDLT rates when making changes.
4. Tenants in Common
- If you are a tenant in common, or if you share an undivided share with others, the same 25% rule applies. This is addressed in Para 7A(4).
As a tenant in common, if you hold 25% or more of the share in the property, you may also qualify for relief from the higher rates when making modifications to your ownership.
Examples of Transactions That May Be Affected
To clarify how these rules work, let’s look at some examples:
Example 1: Adding to Your Share
Suppose you own 25% of a property jointly with three other people. If you buy out one of their shares, increasing your ownership to 50%, and you have been living in the house as your main residence for the past three years, you would not have to pay the higher rates of SDLT, assuming the lease conditions are met.
Example 2: Leasehold Extension
Imagine you have a leasehold flat with 22 years left on the lease and have lived there for three years. If you successfully extend the lease, you will not pay the additional SDLT, as the lease duration surpasses the 21-year requirement.
Example 3: Change in Ownership Structure
Let’s say you and your partner own a property as joint tenants. If you decide to convert it into tenants in common while ensuring that you both still retain your 50% interests, this could be seen as a change in the nature of your interest. Since you each benefit from a 50% share, you could be eligible for relief from higher SDLT rates.
Documentation and Evidence Requirements
When you claim that the higher rates should not apply, you must provide sufficient documentation to prove your eligibility. This may include:
- Proof of residency for the past three years, like utility bills or council tax documentation.
- The current lease agreement, showing the remaining lease period in the case of leasehold properties.
- Documents that verify the percentage of interest owned, such as land registry details or partnership agreements.
Potential Consequences of Misunderstanding your Rights
If you incorrectly assume that you qualify for relief and do not pay the necessary higher rates of SDLT, you could face serious consequences. These might include:
- Penalties imposed by HMRC for underpayment of tax.
- Interest charged on the overdue tax amount.
- Potential legal complications arising from tax disputes.
It’s essential to fully understand your circumstances and consult appropriate legal or tax advice if you are unsure about your situation.
Final Points to Consider
If you plan to make changes to your interest in a dwelling, carefully assess whether the conditions mentioned apply in your case. Keep careful records of your residency and ownership percentages, as these will be key in determining your liability for SDLT.
Even if you believe that you meet all criteria, it is wise to consult with a tax professional who can help you navigate the complexities of the SDLT rules and ensure that you comply with all necessary requirements.