3% tax and intent at purchase

by Readers Question

14:34 PM, 24th April 2016
About 3 years ago

3% tax and intent at purchase

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3% tax and intent at purchase

We are in the following situation: Have a modest portfolio of BTL properties, but just sold the family home & living in rented accommodation. Was hoping to buy a large family home that we’d like to do a large extension on before moving in. Getting planning permission + architects + builders lined up will take at least a year. Was hoping to buy it on a BTL loan & let it for a year while this was sorted out & then change the loan to ordinary residential when the works start/ or when we move in. tax and intent at purchase

Will we have to pay the extra 3% as long as we move in within 36 months of selling the family home?

My reading of the new SDLT legislation ( https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/509184/GuidanceNote_Final.pdf.) is that it hinges on intention:

3.36 The test in respect of the new dwelling purchased is a question of *intention*, does the purchaser intend the dwelling to be his only or main residence? This is a question of intention at the time of purchase, what has the purchaser acquired the property for? The intention test will not only be met if there is an intent to immediately occupy, if some works are to be undertaken before occupation commences then this does not prevent the test from being met. If the dwelling is intended to be put to other uses, for example as a source of income, then the intention test will not be met. There may be rare cases of the purchaser’s genuine intention at the time of purchase being frustrated by events.

Our *intention* is clearly to make it a family home, but I worry that taking out a BTL loan on completion will be considired by HMRC to show a different intention, and that I will have to pay 3% and not get it back when I move in.

Does anyone have thoughts on this *intention test*? Is there a way of proving my true intentions if I take out a BTL loan at first?

Thanks

David

p.s. I realise that getting a normal resi loan at completion & then taking out a BTL shortly thereafter might work, but that is not an easy route for us.



Comments

Simon Hall

16:29 PM, 24th April 2016
About 3 years ago

David,

I take it that, you are struggling to satisfy the lending criteria in relation to applying for residential mortgage hence you decided to take Buy to let route? regardless of your intentions.

David Mensah

16:57 PM, 24th April 2016
About 3 years ago

Reply to the comment left by "Simon Hall" at "24/04/2016 - 16:29":

yes, it will be much easier if we can get a BTL now & convert it later to a residential loan.

Of course the question about 3% becomes moot with a residential loan.

Neil Patterson

11:30 AM, 25th April 2016
About 3 years ago

Hi David,

The Loan would have to be a regulated BTL as it is your "intention" to live in it in the future. This will drastically reduce your options so you will need to discuss this with a fully qualified and FCA regulated broker first.

Also you will not get a standard BTL loan or be able to rent it out while you are refurbing and extending.

Am I missing something here?

David Mensah

11:52 AM, 25th April 2016
About 3 years ago

Hi Neil,

Thanks for your insights.

My plan was to take a normal BTL, and then change over once works start, in about 12 months. Extra cost would be ERCs and refinancing, but I think I can swing that.

Unfortunately my solicitor said that I would be hit for 3% because the BTL loan at completion means that my intention at completion would be to let it out.

It sounds like you might be suggesting a middle way: A regulated BTL is one where I can in principle live in the house? Would that be a way of clearing the "intention test hurdle" I identified above?

I'm not so familiar with these loans, I thought the choices were either a home loan or a BTL.

Is there a good source to look into these (besides talk to a mortgage broker). I have seen that there is a 40% occupancy test, but otherwise information seems opaque.

thanks,
Ard

David Mensah

11:54 AM, 25th April 2016
About 3 years ago

Your comment made me think of another scenario: say I buy a home for my family, but intend to spend the summers elsewhere and let out the house for 3 months at at time. Assuming the mortgage company is OK, am I then also required to pay 3% tax at completion?

Neil Patterson

12:45 PM, 25th April 2016
About 3 years ago

Hi Ard,

A regulated BTL is a property you rent out NOT live in, but you have the intention of living in it at any point in the future. Once you do live in it then it will need to be remortgaged to a residential mortgage not a BTL.

I hope that clarifies.

Neil Patterson

12:48 PM, 25th April 2016
About 3 years ago

Please see flow chart below:

Stamp

David Mensah

14:01 PM, 25th April 2016
About 3 years ago

Hi Neil,

Thansk for the helpful graphic from the original position paper-

- the question I am asking is this: *what are the tests to confirm that one is replacing the current main residence?* and more specifically *will a BTL loan negate any other factors in that test?*

ps. -- note also that bottom middle is now 36 months, not 18 months.

David Mensah

14:04 PM, 25th April 2016
About 3 years ago

It sounds like a regulated BTL mortgage is then one where the intention is indeed to occupy. Perhaps that would help satisfy HMRC.

Neil Patterson

14:06 PM, 25th April 2016
About 3 years ago

Hi David,

I don't think anyone will really know for sure as we are too early in the rules for anyone to have run across this scenario. I think it is worth calling HMRC and asking them about your situation personally.

If you could let us know that would be very helpful 🙂

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