The ADS replacement of main residence exemption / reclaim is one of the most commonly litigated elements of the LBTT regime. Here we address one common oversight – the time limits around occupation of a former main residence – which can lead to the exemption being blocked and reclaims of ADS being denied.
If the purchaser of a house owns more than one dwelling at the end of the day of purchase, ADS is payable unless the house is the replacement of the purchaser's main residence. That will be the case if the purchaser:-
- intends to occupy the house as their main residence
- has sold their former main residence within the previous 18 months, and
lived in the house being sold as their main residence at some point within the 18 month period before the new main residence is purchased.
Similarly, if a new main residence is purchased before the old main residence is sold, ADS will be payable on the purchase, but the ADS can be reclaimed if the purchaser:-
- intends to occupy the new house as their main residence
- sells the former main residence within 18 months (or within 36 months where the purchase was between 24 September 2018 and 24 March 2020) of the purchase of the new main residence, and
lived in the former main residence at some point within the 18 month period before the new main residence is purchased.
The requirement to occupy the property which is being sold as a main residence within the 18 month period before the new main residence is purchased is often overlooked.
Take the example of Mr X who is selling a flat in Aberdeen where he used to live and is buying a new house in Edinburgh which will be his main residence.
The purchase of the Edinburgh house completes before the sale of the Aberdeen flat, so ADS is payable, but he expects to be able to reclaim the ADS when the Aberdeen flat is sold. Unfortunately, he last lived in the Aberdeen flat more than 5 years ago so the replacement of main residence conditions are not met, and the ADS cannot be reclaimed.
Note that – since Mr X owns no other property – had he disposed of ownership of the Aberdeen flat before buying the Edinburgh property, he would never have been liable for the ADS charge at all.
It is essential to check when the house being sold was last occupied as the main residence – if that was more than 18 months before the purchase of the new main residence, this will not count as the replacement of a main residence and ADS will be payable, or cannot be reclaimed if already paid.
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