National Conveyancing Week - Understanding Main Residence

As part of the first ever National Conveyancing Week, of which Irwin Mitchell is a proud sponsor, we will be releasing a series of articles on topics relating to conveyancing and residential property. In this article Sarah Coyne, a Licensed Conveyancer in our Sheffield office, explores the meaning of main residence in connection with Stamp Duty Land Tax.

When it comes to Stamp Duty Land Tax (SDLT) there are a number of complexities which could keep a conveyancer awake at night. The recent case of Cohen v Revenue and Customs Commissioners looked particularly at the test for “main residence” in the context of ‘main residence relief for higher rates purposes.

For purchases of second or subsequent properties, the “higher rate” (a 3% surcharge on top of the standard rate of SDLT) may be payable. However, this does not usually apply when the owner is replacing their main residence. To rely upon this relief, the individual must be disposing of their current main residence and replacing it with a new main residence. When a person resides at two or more properties, a number of things need to be considered in order to ascertain which of those properties is their main residence for the purpose of the relief.

An individual cannot nominate which property is their main residence, nor does spending the majority of their time at one property automatically determine the issue Accordingly, the particular facts and circumstances relating to the occupation of the property must be considered.

Although not exhaustive, HM Revenue and Customs have provided the following guidance to determine main residence;

If the buyer is married or in a civil partnership, where does the family spend its time?

If the buyer has children, where do they go to school?

At which residence is the buyer registered to vote?

Where is the buyer’s place of work?

How is each residence furnished?

Which address is used for correspondence?

Where is the buyer registered with a doctor / dentist?

At which address is the buyer’s car registered and insured?

Which address is the main residence for council tax?

There is no sole indicator that defines what is or isn’t a main residence, but simply occupying a property will not in itself make it a main residence. However, the level of occupation of a main residence must have “a degree of permanence”. Case law has established that the main residence will be dictated by the quality of the occupation, not the quantity of time spent there, and the intentions of the buyer at the time of sale or purchase of the dwelling.

In the recent case of Cohen v Revenue and Customs Commissioners, Mr Cohen purchased ‘Sherrard Road’ and although he owned other property, he intended for the property to be his main residence.  Mr Cohen changed his mind about living at the property within a very short time and resided there for only 10 days. He then went on to purchase a new build property (Luna Court) which was to be his main residence and whilst he did sell Sherrard Road, the First Tier Tribunal decided that Mr Cohen’s occupation of Sherrard Road was considered temporary and not his main residence, meaning he was not disposing of his current residence and would be liable for the higher rates of SDLT when completing the purchase of Luna Court.

In giving their decision, the Tribunal made the following observations;

“First, whilst we accept that Mr Cohen was in occupation of Sherrard Road (albeit only for ten days) this is not the same as saying it was his only or main residence. The features relied upon by Mr David Cohen are consistent with occupation but do not lead to the conclusion that Sherrard Road was Mr Cohen’s only or main residence. We note that Mr David Cohen (as had Mr Cohen in correspondence with HMRC) emphasised Mr Cohen’s intentions when he purchased Sherrard Road that it would be his only or main residence. However, we find that those intentions had changed before he moved in, as he had already decided to sell Sherrard Road and to purchase Luna Court during the works to Sherrard Road (and so before he moved in).

Secondly, the very short period of time that Mr Cohen lived at Sherrard Road is, in all the circumstances, indicative that his occupation was temporary.

Thirdly, Mr Cohen did not intend to live at Sherrard Road permanently. Before he moved into Sherrard Road he knew that such occupation would be temporary and very short term as he had already decided that his purchase of Sherrard Road was a mistake, had already decided to sell Sherrard Road, and had already decided to purchase Luna Court. 

Fourthly, Mr Cohen did not even continue to live at Sherrard Road for the entirety of the period between completion of the works and the completion of the purchase of Luna Court; Mr Cohen said he only lived at Sherrard Road for ten days, whereas the purchase of Luna Court was completed on 30 October 2018.

Consideration should be made as to whether the buyer intends the dwelling to be their only or main residence at their time of purchase and what have they acquired the property for. The intention test does not require the buyer to immediately occupy the property. If works are to be done at the property before occupation commences, or a short lease is in place before purchase, then this does not prevent the test from being met. If, however, the dwelling is intended to be put to other uses, such as a source of income, then the intention test will not be met.

For the purpose of identifying whether the test for main residence relief is met, both property owned by the buyer and by their spouse/civil partner must be considered. Couples who are married or in a civil partnership are treated as one person and so anything that is owned by one of them is considered to be owned jointly. With this in mind, the purchase or sale in one of their names remains relevant and could impact whether higher SDLT rates will apply when purchasing a new residential property.

If the buyer still owns their previous main residence at the time of purchase of the new property intended to be their main residence, the buyer will own two properties at the time of purchase and will be liable for the higher rate of SDLT. However, if the buyer then goes on to dispose of their previous main residence within 3 years, they can apply for a refund of the SDLT surcharge paid.

Determining what a main residence is, therefore, is not straightforward making this a difficult area to navigate. The question of residence for SDLT is complex and one rule does not apply to all cases. Given that HMRC can open an enquiry into an SDLT return a number of years after completion, great care needs to be taken when considering a buyer’s circumstances to determine if the higher rate applies and it would be prudent of any buyer to take SDLT advice from a Tax specialist to help them navigate this difficult area.