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3% Surcharge, MDR and Linked Transactions

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Dominic Crilly

Posted on:
03/06/16 10:26
Subject: 3% Surcharge, MDR and Linked Transactions

Client sells his main residence and buys a new residence with a subsidiary dwelling (eg gardener's cottage) nearby. Whilst multiple dwellings relief could apply the transaction is presumably caught by Sch4ZA para5 so that the 3% surcharge is payable on the full consideration without any main residence replacement relief. But if the two dwellings are on separate titles and (although exchange on both is simultaneous) the new main residence completes before the gardener's cottage, does that avoid the 3% surcharge on the main residence? My thought is that para5 would no longer apply since there would then be two transactions each with only one dwelling (it is accepted that the transactions are linked).
Patrick

Posted on:
03/06/16 13:16
Subject: RE: 3% Surcharge, MDR and Linked Transactions

This is a good question and draws attention to the trap in the way the main residence exception works in a multiple dwelling transaction. The two properties could be bought together if the gardener's cottage is worth less than ?40,000 (so that you fall outside paras 5 and 6 Sch 4ZA) or as you say the two properties could be bought in separate albeit linked, transactions so that para 5 does not apply and para 3 effectively exempts the purchase of the new main residence and the cottage falls outside the 3% charge on its own. If the gardener's cottage was worth ?40,000 or more and this was a multiple dwellings purchase then you fall into para 5 which does not allow for a main residence replacement exception so that the 3% additional charge applies to the total consideration.
Dominic Crilly

Posted on:
03/06/16 14:35
Subject: RE: 3% Surcharge, MDR and Linked Transactions

Thanks for that Patrick. A nasty trap for the unwary, particularly those selling their London flats and upsizing to the sunny South West!
I can't make my mind up whether the separate completions route described above might be caught by s75A. I'm leaning towards that not being so, since s75A only applies for the purposes of Part 4 and not for the purposes of Sch4ZA itself but I'm not feeling confident about that, particularly in a case where the two titles might be artificially created out of one shortly before exchange...
Steve C

Posted on:
18/05/17 16:30
Subject: RE: 3% Surcharge, MDR and Linked Transactions

what happens in this scenario if there are two linked transactions, the first being in March 2016 and the second after the additional 3% is in force?
My reading of the basic rules suggests that after aggregating the values, the rates applying at the second transaction are used, to arrive at an overall SDLT figure. This appears to taint the original March 2016 transaction, but is this correct?
John Shallcross

Posted on:
17/06/17 11:14
Subject: RE: 3% Surcharge, MDR and Linked Transactions

I feel there is a point which has been missed here relating to the "subsidiary" nature of the gardener's cottage to the main house. Let us assume what is most likely, that the cottage is worth £40,000 or more and that the house and cottage are sold in a single transaction.

Sch4ZA para 5 should not apply to incur the higher rates of SDLT because of 5(4), the cottage is subsidiary to the house. See 5(5) for the details.

So we are left looking at a para 6 charge. In the case of a property with a subsidiary dwelling the effect is to look at it for surcharge purposes pretty much as if it were a single dwelling, though the wording to achieve that is quite complex. A key point is that the exception from the surcharge for the replacement of an only or main residence is available for a para 6 case. See para 6(1)(d) explained in para 6(3) which refers one on to the usual replacement rules in 3(6) and 3(7).

Do note though that to make the replacement exception work in a multi dwelling case, the intention must be to live in the main dwelling, not the subsidiary one.

Other points arise too, but enough for this posting!
John Shallcross

Posted on:
18/06/17 06:14
Subject: 3% Surcharge, MDR and Linked Transactions

Steve C asks about how to calculate the SDLT for linked transactions, one of which is liable to the surcharge. This is explained at Example 7 of this article: https://www.blakemorgan.co.uk/news-events/blog/additional-3-stamp-duty-land-tax-surcharge-granny-/
Dominic Crilly

Posted on:
06/07/17 14:34
Subject: RE: 3% Surcharge, MDR and Linked Transactions

You're quite right of course John, but do bear in mind that the original post above was made before the enactment of the granny flat exemption.

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