My wife and I sold our old house in Bristol last year — six months after buying our current house — and believe that we overpaid stamp duty on our purchase. We understand it is possible to apply for a refund on the higher rate part of the SDLT bill, but we want to ensure there are no pitfalls. HM Revenue & Customs’ latest guidance says it will refund the money before checking eligibility — how do we ensure that we calculate the correct refund and ensure compliance?
Oliver Embley, partner at Wedlake Bell, says you are referring to the higher rate part of the Stamp Duty Land Tax (SDLT) bill — a 3 per cent surcharge on properties in England and Northern Ireland. The charge applies, broadly, where a person, or a married couple, purchases a second property and, at the time of completion, already own another residential property.
Oliver Embley, partner at Wedlake Bell
The 3 per cent surcharge would not generally apply where you are replacing your main home, which is the case here. However, sometimes it won’t be possible to sell your old home before buying a new one. In that case, you would own more than one property at the date of completion on the new home purchase and will need to pay the 3 per cent surcharge upfront.
You say that you sold your old house “last year”. Please note that you only have 12 months from the date you sold your old home to claim the 3 per cent refund. If that is the case, you need to make sure that you sold your old home within three years of the purchase of the new one and that you are, indeed, replacing your main home and that all other conditions for the refund apply.
HMRC has a helpful online SDLT calculator, which includes the 3 per cent surcharge. For example, if the new property was bought for £1m on August 1 2020, the SDLT (with the 3 per cent surcharge) would be £58,750, but without it would be £28,750. As such, you would be entitled to a refund of £30,000. However, the calculator does not take into account various quirks such as multiple dwellings relief.
You can make a claim for the refund online via the Government Gateway website, or by writing to HMRC, which should make the refund within a month or so without checking your claim form. However, HMRC will often open an inquiry or a “compliance investigation” into the refund claim to ensure all conditions were met.
HMRC should open any inquiry within nine months of your refund claim. If you have heard nothing within nine months, it seems likely there will be no further action. However, if the authority believes you have been careless in your refund claim or claimed falsely, the limits for “discovery assessment” can be up to six years for careless claims or 20 years for deliberate false claims.
My advice would be to ringfence the refunded money for at least a year. You might also want to consider instructing an SDLT specialist solicitor to submit the claim and deal with any subsequent correspondence.
Can we save on CGT when dividing up our marital assets?
My husband and I are separating amicably and are discussing how to split our joint properties and assets. A friend has suggested that the timing of our separation within the tax year is also important due to “nominal spousal exemption”. What does this mean and what should we do?
Alison Palmer, a private client partner at Mercer & Hole, says the key tax consideration when disposing of assets is capital gains tax (CGT) and the timing of spousal transfers is indeed an important factor.
Alison Palmer, private client partner at Mercer & Hole
The basic rule is that any capital gain on a disposal of an asset (or part of an asset) is calculated by taking the gross proceeds and deducting any allowable costs. Where assets are being transferred rather than sold, and the parties are connected, the disposal is deemed to take place at market value, similar to an actual sale. While a married couple or civil partners are deemed connected for this purpose, transfers of chargeable assets between spouses are effectively tax exempt — taking place at “no gain no loss”, with the recipient spouse taking on the original acquisition cost and date going forward. However, this treatment is only available until the end of the tax year of separation.
Take the example of a UK-resident married couple who jointly own (in equal shares) a UK investment property which they purchased for £500,000 and is now worth £900,000. If they separate on July 31 2021 and agree that spouse A will transfer their share in the property to spouse B as part of the division of assets, then property is standing at a gain of £400,000 (£200,000 each).
If the transfer takes place on or before April 5 2022, the exemption will mean that no capital gain arises to spouse A on their half share, and spouse B will keep the original base cost of £500,000 going forward. There is no requirement to report the disposal to HM Revenue & Customs.
However, if the transfer takes place after April 5 2022, under the market value rule spouse A will be liable to CGT of up to £56,000 (based on the highest rate of 28 per cent). Spouse B’s base cost going forward will be £700,000 (comprising their original £250,000 plus an uplifted half share of £450,000). Crucially, the disposal will be reportable and the tax payable to HMRC by spouse A within 30 days of the transaction — despite there being no cash proceeds to fund the liability.
You should review your assets and CGT position as soon as possible to give yourselves the opportunity to maximise the spouse exemption if desired. Where spouse exempt transfers are not feasible, other CGT reliefs may assist, such as the main residence exemption for the marital home or rollover relief where multiple joint investment property interests are being exchanged in favour of sole ownership. There are some limitations to be aware of, and formal claims may be required, so professional tax advice should be sought as well as legal representation.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Our next question
My partner owns an ex-council flat, which we would like to sell, but there is no interest. So we are considering renting it out privately via an estate agent or leasing it to our local housing association, which is offering just over £1,200 per month and wishes to enter into a three- or five-year agreement with us. Currently, this is the only property either of us own, but we are considering buying a house together in the next 12 months. The current mortgage payments are around £1,100 a month, with interest locked in at 1.6 per cent until November 2024. Will tax be due on the rental income? If so, how much? Also, could there be capital gains tax due if we sell at the end of the lease?
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