Since 2016 purchasers of residential property have faced paying a higher rate of Stamp Duty Land Tax (SDLT) of an additional 3% on top of normal SDLT rates if buying a new property resulted in the taxpayer owning more than one residential property.  The surcharge was not payable if the new property being purchased was to replace the taxpayer’s original dwelling.

However there were inevitably situations in which a new dwelling was purchased without the original one having been disposed of.  Recognising that this was not an uncommon scenario that could have resulted for a whole variety of reasons, HMRC offered a window of three years from the date of completion of the new dwelling to allow the original dwelling to be disposed enabling the taxpayer to apply to HMRC for a rebate of the surcharge.

HMRC regarded the three year window to be ample time within which to dispose of the original dwelling.  And in the vast majority of cases it would be – but not for some.  Consider the example of a separating couple each buying their own new home but encountering a substantial delay in the disposal of the matrimonial home due to lengthy divorce proceedings.

It is a well known fact that from mid-March to mid- 2020 the housing market was all but suspended due to the Covid-19 crisis with reportedly more than 450,000 transactions stalled.  The Government issued advice against home moves recommending that parties should refrain from exchanging contracts and, where contracts had been exchanged, parties should agree to delay completion.

This proved a major headache for large numbers of home-movers.  But for those who were approaching the end of the three year disposal window that headache became a financial migraine which remained despite the easing of lockdown in relation to the housing market on 13th May.

Recognising the difficulties that there have been in disposing of properties during lockdown, HM Treasury made a statement on 3rd June stating that in certain specific cases HMRC can now grant an extension to the three year disposal window.  The extension will apply if an affected person had not been able to dispose of their original dwelling within that window because of “exceptional circumstances outside of their control”.  The Covid pandemic is specifically cited as an exceptional circumstance.  The other specific example was action taken by a public authority preventing a sale of the original dwelling.  Together those cover the suspension of transactions during the 8 week Covid-19 lockdown period.

This concession applies to all those whose refund window ended on or after 1st January 2020 (although that date occurred well before the public had heard of Covid-19 and the housing market was about to experience the “Boris bounce”).

Those affected are still expected to complete a sale as soon as possible once the exceptional impediment to a sale ceases to apply.

HMRC is to set out operational guidance on the cases that will qualify for the extended refund window “in due course”.  It is likely that a seller will have to contact HMRC to set out their particular circumstances as well as provide the information usually required when applying for a rebate.

HMRC will consider each application on a case-by-case basis and will monitor the number and type of applications to deter abuse.

There will be situations where permitting an extension will be the immediate conclusion for HMRC.  However not all situations will be clear cut – in particular when assessing how much the Covid-19 pandemic had caused a property sale to fail.  HMRC will need to assess to what degree the pandemic contributed to a failure to dispose of the original dwelling since 1st January 2020.

The Covid-19 pandemic has created volatility on the global financial markets, increased job insecurity and unemployment, and reduced bank lending due to practical difficulties faced by valuers needing to inspect properties during full lockdown and the introduction of market uncertainty clauses in valuations.  It has not just been the practicalities of moving that have impeded transactions.  Financial uncertainty has played a large part as well.

Will HMRC agree a concession for a seller whose purchaser decided not to proceed for financial reasons resulting from the Covid-19 pandemic?  How far will HMRC investigate the validity of those reasons and what evidence might they require in order to do that ?

Some of those who paid the surcharge were those relocating to the UK from overseas but who were unable to dispose of their original dwelling in their home country at the same time. Will HMRC consider “exceptional circumstances” in that home country that have prevented the sale?  Would the lockdown in Rome be considered as an exceptional circumstance preventing the sale of an original residence located there?

Those exceptional circumstances may not be directly related to the Covid-19 pandemic.  The writer knows of a Syrian family who paid the 3% surcharge on the purchase of their London house and who are unable to dispose of their property in Syria – for obvious reasons.

Back home, would the failure of a property to sell due to the need for a lengthy Japanese Knotweed eradication plan to be completed constitute an “exceptional circumstance outside of the seller’s control”.  It is totally unrelated to the Covid-19 pandemic and the timing of the concession and the reference to the pandemic would imply that the exceptional circumstance should be Covid-related.

So does this extension provide affected taxpayers with the opportunity to present a case for “exceptional circumstances” generally when they had no opportunity to do so before?  It certainly does despite the absence of any other examples of what might constitute an “exceptional circumstance outside of the taxpayer’s control”.

Whether HMRC will consider such exceptional circumstances and grant an extension is another matter given that the concession has been introduced directly due to the effects of the Covid-19 pandemic.   As is whether the opportunity to petition HMRC to extend a three year window in exceptional circumstances to become a permanent one.  The administrative burden on HMRC to consider exceptional circumstances over an indefinite period including non Covid-related exceptional circumstances would be a heavy one that they are likely to want to avoid.

If you have any queries about this topic, please contact Rosie McCormick Paice or any member of the Residential Property team.


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