Q&A: 'main' residence versus bolt-hole for higher rate stamp duty

In our regular Q&A, Alexandra Fielding CTA, tax adviser at Croner Taxwise, considers the capital gains tax implications if a couple sell one of their homes, currently used as the family home but not designated as the primary residence for tax purposes

Scenario: a married couple owns a house in Devon and a flat in London, and one partner stays at the London flat for three/four nights only in working weeks. They made a principal private residence (PPR) election nominating the London flat when they purchased it, but the Devon property is the family home. They are in the process of selling their Devon property and buying a new home in the area.

Q: Does nominating the London flat as their main residence mean this couple will now pay the additional 3% stamp duty land tax (SDLT) on their new home in Devon?

A: SDLT can be charged at ordinary residential rates, plus an additional 3% where an additional dwelling is purchased which is not replacing an old main residence.

The nomination of the London flat as the main residence for capital gains tax (CGT) purposes was made under section 222(5) of Taxation of Chargeable Gains Act 1992 (TCGA 1992). The nomination applies for the purposes of s222, meaning it only has effect when calculating the amount of CGT relief available if the London flat is disposed of at a gain.

For SDLT, taxpayers do not have the option to nominate a main residence, nor is there a requirement that spouses must only have one main residence between them. If the London flat is determined to be the husband’s main residence for SDLT, then SDLT on the new Devon property will be charged with the additional 3% rate on the entire transaction because the property will not be a replacement of a main residence for both joint purchasers.

There is no statutory definition of ‘main residence’. Which of two residences is the main one must be determined by considering how the individuals reside in them.

Case law has determined that a main residence is not the residence in which one spends more time, but that which is more important.

HMRC has produced a non-exhaustive list of indicators of a main residence for its employees to use to establish an individual’s main residence.

The checklist may be of little use in determining which property is more important to the taxpayer as the indicators are not evenly weighted, but they will give insight into which property HMRC might determine to be the main residence.

If the indicators suggest the Devon property is the main residence for SDLT, and the taxpayer believes the same, the risk HMRC would dispute the SDLT rates reported is lower than if they differed.

If the balance of indicators suggest the London flat could be the main residence and the taxpayer disagrees, it would be useful to prepare a file note summarising the reasons the Devon property is treated as the main residence for SDLT to refer to in the event of an HMRC enquiry into the SDLT return.

About the author

Alexandra Fielding is a tax adviser at Croner Taxwise, tel:  0844 892 2470 This article first appeared in Croner Taxwise Community

Further reading

HMRC Stamp Duty Land Tax Manual at Croner-i Tax & Accounting

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