SDLT 3% surcharge for additional properties: Common questions

A new 3% surcharge in stamp duty land tax (SDLT) for additional properties was introduced on April 1, 2016. Following the change it has been reported that HMRC’s stamp duty land tax (SDLT) technical team are receiving more than 570 queries a month on this topic.

It is no surprise that they have a backlog of about 1,220 written enquiries, 70% of which are on these higher rates of SDLT. HMRC recently told a caller that it is taking 8 – 12 weeks to reply, and that the number of case officers has increased to cope with demand.

Blake Morgan takes a look at some questions being asked by house buyers.

1. Replacement of main residence

When I met my partner we lived separately in properties we each owned in our own name. My partner then moved in to my house (in Oxford) and started to rent her flat out rather than sell it. We are now looking to buy a property in Reading together in equal shares. To fund the purchase I will need to sell the Oxford house where we both live currently. She would keep her flat. I am wondering if the Reading purchase is subject to the additional 3% charge?

Generally the rules for the 3% surcharge are less favourable for married couples. But this is an exception.

If you are unmarried and your partner is a joint buyer with you, then the Reading purchase will incur the 3% surcharge because of her retained flat (assuming it is worth £40,000 or more). She cannot rely on your Oxford sale for claiming that the “replacement of main residence” exception applies.

If you are married then so long as your Oxford house is genuinely a main residence for both of you, then you should be able to use the “replacement of main residence” exception if you both buy the Reading property and you both intend living there as your main residence.

2. Buying two properties in the best order

I recently sold my London flat (it was my only residence) and have no other interests in properties. I wish to buy two: a flat to let out and a house to live in. Would I pay the SDLT surcharge on whichever I buy second? Or does it depend upon which will be my residence?

The answer depends on the order in which you buy the two new houses. The options are:

(a) You buy the house to live in first and then the flat to rent out. You would not pay the surcharge on the house, but would on the flat.

(b) You buy the flat to rent out first (never intending to live in it) and then the house to live in. You should not pay the surcharge on either if you buy them on different days. At the time of buying the flat it will be your only property, so the surcharge does not apply. In buying the house in this scenario you might benefit from the replacement of main residence rules, so again, no surcharge.

You should watch out for traps though. For instance:

• If a spouse or civil partner has, since the sale of the main residence, bought a new residence, then that sale cannot be used now for you to escape the 3% surcharge.
• If you are buying jointly with someone else then their property interests are relevant.
• If you have a spouse or civil partner then you are usually deemed to be buying jointly with them and their property interests are relevant.
• Property interests of minor children counts as yours.
• If you buy two dwellings in one transaction, you are into different rules. The “granny annex” issue is relevant, as are the amendments made to the Finance Bill to deal with it.

3. Interest in other properties

My name is on the deeds of a house which I helped to purchase for my mother to live in  My name is on the deeds to satisfy the lender’s criteria as we needed a small loan. I have never lived in the house.

I currently live in a rented flat with my wife. We moved there after she sold her house in July 2013, we had both lived in her house until then. We are now together purchasing a home of our own which will be our only residence. Will this purchase be subject to the higher rates of SDLT? 

What matters is not so much whether “your name is on the deeds” of the house your mother lives in, as on whether you have an underlying share in the property, or a “beneficial interest”. If the interest is worth under £40,000 then it would not count against you for 3% SDLT surcharge purposes on your purchase.

Failing that, you may be able to ride on the back of your wife’s disposal of her house in July 2013. For you to be able to rely on the “replacement of main residence” exception using your wife’s sale:

(a) You would have to have been married to each other at the time of her sale in July 2013 and

(b) That sold property was your main or only residence at some time.

Although it is over three years from your wife’s sale, if you buy on or before 26 November 2018, the three year rule would not be in force.

4. Property overseas

I own a flat in France worth £50,000 which is rented out. This is entirely mine. My wife and I have been living in rented accommodation since selling our main residence in 2008, but we are looking to buy a house in London to live in.

The HMRC guidance states that we wouldn’t have to pay the 3% SDLT surcharge on the purchase if we buy before November 2018, but we have just been advised that we would. What is the position?

You should benefit from the “replacement of main residence” exception if, since selling the main residence in 2008, neither you nor your spouse have acquired another property as a main residence. Transitional rules apply suspending the three year period where the sale is before the purchase. The transitional period ends on 26 November 2018, so you should buy on or before that date if you are to escape the 3% surcharge.

The 3% surcharge tests would also have to be applied to any joint buyer with you and to any spouse (as if they were a joint buyer). If any one of you would be caught, then the whole transaction would be caught.

5. Buying out the rest of an inherited property

My wife inherited a share in a house along with her brother and sister (it was left to them equally) from her mother who died over two years ago. We are considering buying them out, but we currently own two flats (one of which is rented out, the other is our home). We intend to rent out the new house too. Would we be liable for stamp duty land tax on the entire property value or just the 2/3rds my wife did not directly inherit? What is the position as to the surcharge?

This is likely to depend on how the purchase is structured. Alternatives are:

(a) If you buy the house from the executors for its full value (the estate not yet being fully administered) then SDLT is likely to be calculated on the full price.

(b) If the brother and sister have already had their one third shares legally transferred to them, then perhaps their shares can be bought for an agreed price. SDLT should then be due on the sums paid. That should mean no SDLT on the 1/3 share your wife has and keeps.

Either way the surcharge will apply in addition to the normal SDLT, so another 3% on the price if you pay £40,000 or more.