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Buying a new home before selling your current one can lead to unexpected tax issues, especially with Land Transaction Tax (LTT) in Wales. A recent tribunal case has highlighted the importance of meeting the three-year deadline for reclaiming higher-rate LTT when replacing your main home. While delays caused by the pandemic seemed like a valid excuse, the law is stricter now.
The Situation: Buying Before Selling
When you buy a new residential property in Wales while still owning another, LTT applies at higher rates. This is similar to the additional 3% charge seen under Stamp Duty Land Tax (SDLT) in England. The idea is to tax individuals who own multiple homes, including second homes and buy-to-let properties.
However, an important exception exists. If you replace your main residence — meaning you sell your old home and move into a new one – you may qualify for a refund of the higher-rate LTT. But this only applies if your previous residence is sold within a strict three-year period.
A Case Study: When Timing Costs Thousands
In this notable case, a homebuyer purchased a new main residence in Wales in late 2019 but still owned a previous home in England. His plan was to sell the old property shortly after moving. Unfortunately, a series of delays, many of them due to the COVID-19 pandemic, pushed the sale beyond the three-year window.
These included:
- National lockdowns preventing the property from being marketed.
- Job loss and furlough that affected the family’s financial situation.
- A six-month delay in obtaining required environmental reports due to a pandemic-related backlog.
Eventually, the property was sold—but not until just over three years had passed. The buyer then applied for a refund of the higher-rate LTT, arguing that the delays were beyond his control. The Welsh Revenue Authority (WRA) rejected the claim, and the matter went to a tax tribunal.
The Tribunal’s Decision
The tribunal agreed that the delays were unfortunate and largely unavoidable. However, it made clear that the legislation at the time offered no flexibility. The law stated plainly that the previous main residence must be sold within three years of buying the new one for a refund to be granted.
There was no wording in the legislation that allowed the WRA to consider exceptions or extend the deadline due to special circumstances. Because the sale happened a few weeks after the three-year mark, the refund claim was denied.
Recent Legislative Changes: A Ray of Hope?
As of July 2024, changes have been introduced to give the WRA more discretion. A new rule replaces the rigid “three-year period” with a “permitted period” in certain situations.
This means that if legal restrictions—such as those during a pandemic—substantially prevented a property sale, and the transaction took place as soon as reasonably practical afterwards, the refund may still be allowed. However, these changes only apply to transactions that occur on or after 12 July 2024. Any purchases before that date remain subject to the original three-year rule, without exception.
Comparison: England and Scotland
In England, the rules for Stamp Duty Land Tax (SDLT) allow for some extra time in special cases. HMRC may extend the three-year deadline if unexpected events, such as safety issues or legal restrictions, cause delays. Each case is judged individually, and refund requests must be supported with strong evidence.
In Scotland, under the Land and Buildings Transaction Tax (LBTT), the rules are similar to those in Wales, but currently do not allow for exceptions. The buyer must sell their previous main residence within three years to reclaim the Additional Dwelling Supplement (ADS). If they don’t, no refund is available, regardless of the circumstances.
Key Lessons for Buyers and Advisers
- Act Early: If you’re buying a new home before selling your old one, keep the three-year deadline in mind from day one.
- Track the Clock: The clock starts ticking from the date of completion of the new property, not the date of moving in or marketing the old home.
- Don’t Rely on Discretion: For transactions before July 2024 in Wales, there is no legal wiggle room. Missing the three-year deadline, even by days, will likely mean losing the refund.
- Know the Rules in Your Jurisdiction: LTT, SDLT, and LBTT all have slightly different rules and thresholds. Understanding your local system is crucial.
- Keep Records: If your sale is delayed for reasons beyond your control, keep thorough documentation. While not useful in older LTT cases, this could help under newer rules or in other parts of the UK.
Tax rules around property purchases are complex and unforgiving when deadlines are missed. This case highlights that even good intentions and delays may lead to missing out on a tax refund. To avoid costly surprises, it’s important to be proactive and informed. If you are buying a new main home and still own your current one, make sure to mark your calendar and talk to a tax specialist early in the process.