Disposals of homes delayed by coronavirus may mean tax and SDLT relief is lost

There are a couple of reliefs available to buyers of new homes who have been impacted by the coronavirus pandemic.

Stamp duty land tax (SDLT)

Where an individual or spouse still owns their home following acquisition of a new main residence, they will normally be subject to an additional three per cent SDLT. A refund of the three per cent is available where the original home is sold within three years of the acquisition of the new main residence.

Fortunately, HMRC have announced that if a new main residence was purchased on or after 1 January 2017, the purchaser may be entitled to an extension to the three-year period due to exceptional circumstances where HMRC are satisfied that the person:

  • was prevented by some exceptional circumstances beyond their control from disposing of their main residence within the three-year time limit; and
  • sold the previous main residence as soon as they reasonably could after ceasing to be prevented.

Exceptional circumstances can apply where someone was prevented from selling a property due to the coronavirus lockdown or if a local authority prevented the sale. However, they would not apply if a decision to defer a sale at a particular time was taken in order to avoid a loss. The merits of each case will depend on specific facts.

HMRC will only consider a claim under exceptional circumstances once the original home has been sold so, unfortunately, it is not possible to obtain a pre-transaction ruling. This may leave a taxpayer unsure whether they will be eligible or not for the relief. In all circumstances we would recommend that evidence is preserved to support any claims being made.

Private residence relief (PRR)

PRR enables the gain on the disposal of a person’s main home to be tax free for the period they lived in it. Currently the last 18 months of ownership of a main residence will also qualify for relief. This is intended to provide an owner with an opportunity to dispose of the property in an orderly manner. 

To avoid owners taking advantage of this relief on homes that have become investment properties, the Government intended to reduce this period to nine months. This legislation was due to apply from 6 April 2020.  

No official indication has been given as to whether there will be a change of heart due to the lockdown resulting in the preservation or extension of the existing relief. Up to April 2014 the period was 36 months, and this is expected to be preserved for the disabled and those in long-term residential care.

Strangely, due to the way the relief works, once the final period has been exceeded, tax can still arise on a fall in value between the time PPR is lost and the date of sale as some of a previous accrued gain becomes partly taxable.

Further clarification is required to enable taxpayers to understand their position.

For further information, please contact Adrian Benosiglio.

Related industries

Coronavirus: adapting to change

As coronavirus lockdown restrictions ease, businesses across the country are faced with a period of reactivation and reimagination.

What does the 'new normal' look like for your organisation?

Find out more