- If the purchaser owns another dwelling anywhere in the world which has a market value of £40,000 or more.
- The purchase is not a replacement for only the main residence.
- The purchaser is a limited company or similar body.
We are going to focus on the replacement of the main residence on this page. In a usual situation, you will sell your old residence first and buy a new residence after that (or both transactions completed together). In this case, you don’t have to pay a 3% additional rate of Stamp duty and land tax (SDLT).
However, if you buy your new residence first and sell your old after residence after that, you will have to pay an additional 3% SDLT surcharge while buying your new residence. You then can claim a refund from HMRC for this 3% additional SDLT when you sell your old residence.
What are the conditions for claiming a 3% SDLT Surcharge Refund?
As per para 3 of Schedule 15 of Finance Act 2003, there are two parts to the replacement of a purchasers’ main residence:
- The new dwelling acquired must be intended to be occupied as the individual’s only or main residence. (“New dwelling”)
- There must be a disposal of major interest, during the period of three years following the effective date of purchase of a new dwelling, in the purchaser’s or their spouse or civil partner’s previous main residence. (“Sold dwelling”)
- At any time during that period of three years, the sold dwelling was the purchaser’s only or main residence.
The effective date of the transaction usually is the date of completion. Let’s look into the parts of each of these conditions in detail below.
What count as the main residence for the 3% SDLT refund claim?
The SDLT legislation does not define the “main or only residence”. So, we will need to look at the ordinary meaning together with meaning from the capital gains legislation and case laws.
In a simple case where an individual resides at only one dwelling, that will be their only or main residence. The complication arises when an individual resides at more than one dwelling. In such a case, all of the facts and particulars of the particular case must be considered in order to conclude which residence is the main residence. Unlike for CGT, it is not possible for an individual to elect the main residence in case of more than one residence, and any election made for CGT will be irrelevant for SDLT.
As per HMRC guidance SDLTM09812, the following list of points to consider, although not exhaustive, may be useful in establishing which residence is an individual’s main residence:
- If the individual is married or in a civil partnership, where does the family spend its time?
- If the individual has children, where do they go to school?
- At which residence is the individual registered to vote?
- Where is the individual’s place of work?
- How is each residence furnished?
- Which address is used for correspondence?
- Where is the individual registered with a doctor/dentist?
- At which address is the individual’s car registered and insured?
- Which address is the main residence for council tax?
HMRC further clarifies that merely occupying a property will not in itself make it a main residence. There needs to be permanence and expectation of continuation to the occupation to establish it as the main residence.
New Dwelling: Intention or Occupation?
The condition in respect of the new dwelling is a question of intention instead of actual occupation. Does the purchaser intend the dwelling to be his only or main residence? The intention has to be there at the effective date of the transaction. As per legislation, the only intention is relevant not the actual occupation. So, in theory, you may never live in a new residence and still be eligible for a 3% SDLT refund claim as long you had the intention to occupy as only or main residence. Clear evidence of your genuine intention may be required to satisfy HMRC on cases where there is actual occupation or delayed occupation.
The intention does not have to occupy immediately. The following does not prevent the claim:
- If some works needed to be done on the property before the occupation commences.
- Temporary letting of the new dwelling before the occupation commences.
Sold Dwelling – Conditions for the refund claim
The sold dwelling should meet the following conditions:
- There must be disposal (either via sale, gift or any other form transfer) of the previous residence sometime in the three year period following the purchase of the new main residence.
- There must be ownership by the purchaser, his/her spouse or civil partner on the sold dwelling.
- The sold dwelling must have been occupied, at some time in the three year period before the purchase of the new main residence, as only or main residence by the purchaser, his/her spouse or civil partner.
- Immediately after the disposal of the old property, neither purchaser nor the purchaser’s spouse or civil partner had a major interest in the old dwelling.
Sale of Previous Residence after more than three years – is there any exception?
The default rule is that you must dispose of your old residence within 3 years of the purchase of the new residence to claim a refund of the SDLT surcharge. However, in exceptional circumstances, HMRC may permit the extension of the time limit at its discretion if HMRC is satisfied that the person:
- was prevented from disposing of their previous main residence within the 3-year time limit due to exceptional circumstances, and
- sold the previous main residence as soon as they reasonably could after ceasing to be so prevented.
Exceptional circumstances might include being prevented from selling the property due to Government Covid restrictions or other action taken by a public authority preventing the sale of the property. HMRC may also consider situations like a serious illness.
HMRC has made it clear that the following does not qualify as exceptional circumstances:
- A mere change of intention of any party to the transaction at a late stage (for example a buyer withdrawing).
- a shortage of funds.
- deciding not to sell the property in anticipation of making a loss (for example during a downturn in the market).
- collapse of a chain.
HMRC will not consider the application on the ground of exceptional circumstances before the actual sale of the previous main residence. There is no advance clearance facility for this.
What is the deadline for claiming the refund?
The claim for refund must be made within (whichever is later):
- 12 months of the sale/disposal of the previous main residence, or.
- 12 months of the filing date f the SDLT return relating to the new residence.
Does UK Property Accountants process a 3% SDLT refund claim?
Yes, we are the authorised HMRC agent for SDLT and process the 3% SDLT claim on a regular basis for our clients. Our SDLT tax experts will review your information and compile the application together with all the required documents and evidence to enable HMRC to process the refund in a timely manner.
What information is required for claiming a 3% SDLT refund from HMRC?
The following information is required for filing an SDLT refund claim with HMRC:
- the main buyer’s details.
- details of the property that attracted the higher rates of SDLT, including the effective date of purchase and the SDLT unique transaction reference number.
- details of the previous main residence you’ve sold, including the effective date of sale, the address of the property and the name of the buyer.
- the amount of tax paid on the property that attracted the higher rates of SDLT.
- the amount of tax you’re asking for repayment of the bank account and sort code details of the person to receive the payment, where possible HMRC will pay any refund electronically.
- For special cases, all the relevant evidence to satisfy HMRC that you are eligible for the refund.
How long will it take for the refund to be paid?
HMRC aims to process all repayment requests within 15 working days assuming that you provide HMRC with all the information we need together with the application. If HMRC requires further information, there would be further delay in the payment.
Frequently asked questions (FAQs) and Examples on 3% SDLT refund claim
The FAQs and examples below are taken from HMRC guidance with slight changes in the details.
Q1. I am purchasing a new main residence on 28 February 2022 but intend to retain my current main residence and let it out to tenants to earn rental income. Will I have to pay the additional rates of SDLT on the purchase of my new main residence? If so, can I claim a refund of my additional SDLT?
- Yes, the higher rates will apply as following the purchase you will own an additional dwelling and will not have replaced your main residence. However, if you sell your previous main residence within 28 February 2025 (3 years of the purchase of the new one) you will be able to claim a refund from HMRC.
Q2. I own a holiday home in Wales and live in a flat in Manchester which is my main residence. I am in the process of selling my flat and purchasing a new bigger house. I may not be able to sell my current flat in Manchester before I complete on the purchase of the new house – will I have to pay the 3% surcharge? If so, is there any way to get it back?
- Yes, the higher rates will apply, as following the purchase of your new house you will own an additional dwelling and will not have replaced your main residence. However, if you sell your current main residence in Manchester within 3 years of the purchase of the new house you will be able to claim a refund from HMRC.
Q3. I am purchasing a new main residence and selling my previous main residence but my chain falls through. I go ahead with the purchase of my new property so now own two properties. Will I have to pay the higher rates on my new purchase? If so, what should I do to get the refund of higher rates of SDLT from HMRC?
- Yes, you will pay the higher rates. However, if you sell your previous main residence within 3 years of the purchase of your new one you will be able to claim a refund from HMRC.
Q4. I have recently separated from my spouse and am about to purchase a new property that will become my main residence. I still own a share in the former marital home although I no longer live there. Will I be liable for the higher rates of SDLT? Is there any way to avoid this?
- If you purchase a new main residence while still owning a share in your former home the higher rates will apply. However, if you dispose of major interest in your previous main residence within 3 years of purchasing your new one, a refund of the higher rates can be claimed. If your intention is to sell or gift your share in your former marital home, it may be better to do this before you purchase a new residence to avoid paying an additional 3% surcharge. However, even if you initially pay 3% additional SDLT, you can claim a refund back as long the sale or gift of the old residence happen within 3 years.
Q5. I am purchasing a house next door to my current house. I intend to merge two houses as single dwellings. Can I claim an SDLT refund for a 3% additional rate once I merge both houses together?
- The higher rates of SDLT will apply as you already own another dwelling and a new next-door house is not a replacement of the main residence. The fact that you are merging two houses together is not relevant as this will happen after the completion date. You can’t claim a refund for the 3% surcharge as merging does not qualify as a replacement.
Q6. I currently own buy-to-let property and live in rented accommodation. I am now buying the main residence without selling my buy-to-let property? Will have to pay an additional rate of SDLT?
- Yes, you will have to pay an additional rate of SDLT as you will own an additional dwelling and will not have replaced your previous main residence. If you sell your buy-to-let property within 3 years, you still would not be able to claim a refund from HMRC as the refund is only available where the main residence has been replaced. The solution can either be for you to live in your buy-to-let property as your main residence before you purchase your main residence or sell your buy-to-let property before you purchase your main residence. You can also potentially set up a property SPV and transfer your buy-to-let property in the company before you purchase your main residence. You will need to consult with the SDLT tax expert before taking any action on the solution as there would be further details that is applicable to your particular situation.
Q7. I own both the main residence and a buy-to-let property. I am in the process of purchasing a new main residence and intend to keep my current main residence. I would like to sell my buy-to-let property instead. But, the sale of my buy-to-let property would not go through before I purchase my new residence. Can I explain the claim refund for my additional rate of SDLT?
- No, you can’t claim refund. The additional rate of SDLT will apply on the purchase as you will own an additional dwelling and would not be replacing your main residence. When you ultimately sell your buy-to-let property, you would not be able to claim a refund for SDLT as well as the property you sold was not your previous main residence.
