The guidance at SDLTM09800 is quite clear on this. The three year rules apply.
You are right, to be able to use the sale of the previous main residence so as to come within "the replacement exception" you must have sold it within the previous three years. The calculator asks "Is the property being purchased replacing your main residence?" without giving an explanation of the three year tests that apply.
You do not say how old your kids are. If under 18 then their interests are treated as your interests for the purposes of the 3% surcharge. But you would succeed in forever robbing them of the status of first time buyers for the purposes of SDLT first time buyers' relief!
I agree with Justin, as yet there is no "dwelling".
If the parents buy a property as bare trustees then the "purchaser" for SDLT is the daughter. If she intends to live in the property as her only or main residence and meets the other conditions then first time buyer's relief is available.
There is an oddity in the legislation if the purchase is to be by way of taking the grant a new lease. For instance if a new flat is being bought. Then bizarrely the first time buyers' relief does not work as the odd rule about trustees taking leases is not displaced for FTB relief (though it is displaced for surcharge purposes). This is all very odd. HMRC agree it is odd, but say the rules are clear that "constructive interpretation" does not get around them.
As part of considering whether the annex is suitable for use as a separate dwelling, the services should also be considered, such as the heating, electricity and hot and cold water. Are they capable of independent operation and isolation? What is the permitted planning use of the annex? Would it breach the planning for someone to live in it as a single dwelling?
Does the "kitchen" have hot and cold water and a sink with drainage?
The trust purchase will almost certainly be liable to the higher rates of SDLT.
If the minor child has an interest in possession then this is because of FA03/Sch4ZA/para12 (treating parents and some other adults as the purchaser for surcharge purposes).
If no-one has a right to live in the property for life nor a right to the income from it then the higher rates apply because of FA03/Sch4ZA/para13.
So far as SDLT is concerned, the chargeable consideration is the same proportion of the mortgage as the proportion of the property that is transferred, see SDLTM04040 https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt... So in this case 1% of £400,000 which is only £4,000. See FA03/Sch4/para8.
You say you are engaged. If you are married by the time your partner (at the time, your spouse) completes the sale of the property you have both been living in as your only or main residence, then the analysis is different. You can rely on your spouse's disposal to get you into the replacement exception (by which I mean you fail Condition D). So the higher rates do not apply even though you retain another property.
Some of these mortgages would have the parents on the title as well as on the mortgage. The parents are fully liable on the mortgage, but a declaration of trust can make it clear that the parents have no beneficial interest in the property. This article https://www.taxadvisermagazine.com/article/additional-properties emphasizes that the SDLT treatment depends on the underlying ownership, not the person in whom the legal title happens to be vested.
Accountant A wrote:
Unlike Justin Bryant, I'm not an expert in implied trusts and nominees. He suggests that your client's brother did not acquire the property and mortgage for himself but as nominee for your client. My concern is that is almost certainly not what the mortgage provider was told when the application was made. From your question, I understood that the mortgage was only available because the brother was co-owner and mortgagee. If he now says something different, that suggests incorrect representations were made to obtain the loan which might be mortgage fraud.
All partly informed supposition but I'd be doing some research before assuming the nominee route is trouble-free.
The mortgage taken out might well have been of the "Joint Borrower Sole Proprietor" type.