Two dwellings acquired for conversion into one did not qualify as a replacement

Broadly speaking, buyers who already own residential properties are required to pay higher rates of stamp duty land tax when purchasing additional properties. But a buyer may qualify for exemption when purchasing a dwelling as a replacement for his or her only or main residence: paragraph 3(5) schedule 4ZA of the Finance Act 2003. What is the position where a taxpayer purchases two residential properties separately, from different sellers, with the intention of combining them to form a single property, which will become the taxpayer’s home? Moaref v HMRC [2020] UKFTT 0396 (TC) concerned the purchase of two adjoining apartments, of broadly similar size, from different sellers. The taxpayers, who owned a dwelling in Dubai, which they had occupied as their only or main residence between 2014 and 2016, had purchased an apartment described only as “Number 31” for £5,175,000 and an apartment described only as “Number 38” for £7,400,000 with the intention of converting them into a single residential property. They completed the transactions on 24 May 2017 and 6 June 2017 respectively and paid SDLT at the higher rate on both purchases – before claiming refunds of the 3% higher rates from HMRC following the sale of their main residence in Dubai on 5 June 2018. Paragraph 8(2) of schedule 4ZA – which seeks to prevent double counting and prevents the sale of one dwelling being used to frank the acquisition of two replacement dwellings, where one replacement is acquired before the sale of the original main residence and another afterwards – was not applicable because both apartments were purchased before the sale of the taxpayers’ house in Dubai. And the legislation does not contain any provisions expressly limiting the exemption to one purchase where purchases were made before the sale of the old main residence. Consequently, the case turned on the scope and effect of paragraph 3(7) of schedule 4ZA, which deals with the sale of the taxpayer’s old home within three years after the purchase of a new home. It states that a purchased dwelling may become a replacement for the purchaser’s only or main residence if on the effective date of the transaction (by which the purchased dwelling was bought) “the purchaser intended the purchased dwelling to be the purchaser’s only or main residence”. But the evidence showed that the taxpayers had never intended either number 31 or number 38 to be their only or main residence; they intended that their main residence would be a combination of both properties. Consequently, although HMRC had granted a refund in relation to the SDLT paid on number 31 (wrongly as it now believed – but it was too late to reverse its decision), the First-tier Tribunal decided that the taxpayers did not qualify for an SDLT refund in respect of apartment number 38. The taxpayers did not view apartment number 38 on its own as a suitable residence and the words in paragraph 3(7) of schedule 4ZA could not be interpreted to mean that a purchaser is entitled to claim the replacement dwelling exemption if he or she intends the purchased dwelling to be “all or part of” his or her only or main residence. The legislation specifically requires the purchaser to intend that the purchased dwelling will “be“ the purchaser’s only or main residence.   Allyson Colby, property law consultant