I own a 50% share of a flat in Birmingham which I inherited from my mother in 2019. My brother owns the other 50%. The flat is currently rented out and has been since 2020. Neither of us lives there. I have never owned any other property and I currently rent privately with my partner.
My partner and I are now looking to buy our first home together, probably in the £280,000 to £320,000 range. My understanding is that because I already own a share of a residential property, the purchase would attract the higher rate SDLT surcharge, even though I have never purchased a property before and the flat was inherited. My partner does not own any property at all.
I intend to sell my share of the flat to my brother at market value before we complete on the new property. If I do this and the sale completes before our purchase, I believe I would not be treated as owning an additional dwelling at the point of purchase and the surcharge would not apply. Is that correct, or is there a lookback period or anti avoidance rule that could catch us? I have seen references to a 36 month window but I am not clear whether that applies to disposals before purchase or only to refund claims after purchase.
I would also appreciate any clarity on whether my partner’s position as a joint purchaser is affected by my ownership of the flat, i.e. whether the surcharge applies to the whole transaction or only to my share. Thank you.
The key point is that the test is applied at the date of completion of the new purchase, not the date of exchange. If you have disposed of your 50% share before that date, you will not own an interest in another dwelling and the surcharge should not apply. There is no lookback period for disposals that happen before purchase, the 36 month rule you have seen is for the refund mechanism where someone buys a new main residence before selling their old one.
On your second question, yes, if you still owned the flat at completion the surcharge would apply to the entire transaction, not just your share. HMRC assess the position of each buyer and if either one triggers the higher rate it applies to the whole purchase price. So getting the timing right is important. From recollection the transfer to your brother would itself be an SDLT event, though below a certain threshold with no tax due depending on the value of the 50% share.
@GrumpyLandlord47 thank you, that is very helpful. I understand the principle now. The test applies at the date of completion of the new purchase, and if I have disposed of the 50% share before that date, the higher rate should not apply. My concern is the practical timing risk. My brother and I have agreed in principle that he will buy my share, and we have instructed a solicitor to handle the transfer. However, there is no guarantee that the transfer will complete before we find a property and reach completion on the new purchase. If the two transactions end up running close together, is there any mechanism to reclaim the higher rate SDLT after the event if the disposal completes shortly after the new purchase? I believe there is a reclaim window but I am not clear on whether disposing of a share in a property qualifies in the same way as disposing of a main residence.