SDLT liability when buying a second residential property

Broadly, if you already own a residential property, and buy another which does not replace it, the higher rates of SDLT will apply.  But what happens if you simply reduce the extent to which you own home, maybe by selling off part of it?  Is that enough to qualify as replacement?

In the recent case of Sajedi, the court considered whether selling a 1% interest in a property was enough to be a disposal.  If it was, the owners would have been classed as replacing their home and the standard rates would apply; if not, they’d have to budget for an extra 5% SDLT charge.

The court decided that to be a disposal for SDLT, there must be a “real-world impact on the parties’ rights and obligations”, and the disposal must meaningfully change the “character of their relationship to the property”.   In other words selling the interest in the house must leave a gap for a genuine replacement.

In this case, a 1% reduction in ownership was not a sufficiently major disposal.  The owners were required to pay the higher rates of SDLT when they bought their new house, and they could not reclaim the extra 5% they had paid, after they sold their 1% interest.

It is arguable whether this outcome sits squarely with the legislation; we can expect an appeal, or the Government to move quickly to clarify the rules.

If you need help with interpreting the rules on 2^nd property ownership, and would like advice on what rates of SDLT apply to your prospective purchase, please get in touch with our specialist tax solicitors today.