SDLT surcharge – Changes made by the Autumn Budget on 22 November 2017

The Autumn Budget of 22 November 2017 was an exciting Budget for those of us who live and breathe the stamp duty land tax (SDLT) rules on when a purchase of a residential property is subject to the higher rates for additional properties (HRAD or the 3% surcharge).

The eye-catching SDLT announcement was first time buyers’ relief.  There is an interaction with the higher rates rules as the relief is not available if the higher rates apply. But let’s look at the other changes made by the Autumn Budget.

If we are keeping score, there was one measure which is adverse to some tax payers and three which are favourable.

See HERE for a detailed paper on the changes made to the higher rates of SDLT for additional properties by the Autumn Budget of 22 November 2017.  It also now picks up on the changes made by the Autumn Budget of 29 October 2018: to define “major interest” and to extend the time limits for reclaiming the 3% surcharge in some situations.

Blocking a loophole

The way the surcharge rules work can sometimes appear arbitrary.  One particular oddity had been an aspect of the “replacement exception” which allowed a buyer of a property intended as their home to escape the surcharge, even if they owned other properties. The replacement exception depended on having “disposed of a major interest” in a previous home.  It appeared that assigning even a small share in a previous home could have had this affect, as could a transfer to a spouse.

The rules were changed so that for purchases completing on or after Budget Day (22 November 2017) the buyer has to make a more complete disposal of the previous residence.  A disposal now only works if the buyer and the buyer’s spouse / civil partner have no interest left in the previous home.

There is a saving for some purchases pursuant to contracts entered into before Budget Day.

There is an element of retrospection here. Consider someone who completed on the morning of Budget Day without a prior contract, or someone who exchanged contracts on the morning of Budget Day for a later completion.  The new rules will apply to their transaction.  It is only rarely that tax legislation is retrospective.  It is a sign that the ability to rely on a disposal of part only of an interest, or a transfer to a spouse was seen by HMRC as open to abuse.

Good news for leaseholders extending the leases of their homes

There was provision to take outside the scope of the higher rates some further acquisitions of interests in a property the buyer already has an interest in where the buyer has lived in the property long enough.  So for example a leaseholder who lives in their flat but owns another property can in future extend their lease without the 3% surcharge applying.

People who have a share of 25% or more in their home are also able to buy in further shares without the 3% surcharge applying.

To benefit from the new exception there is a requirement that the buyer has lived in the property throughout the period of three years leading up to the date of the purchase.

Good news for those with shares in an ex-spouse’s home

There had been a nasty trap for separated couples.  Often the order made on divorce provided for the property to remain in joint ownership until the children grew up.  The share held by the person who had moved out could then “count against” the person if they bought another property, even if a home to live in.  There are now some provisions so that where there is a court order, the ownership of an interest in another home in these circumstances does not “count against” the person.

No equivalent help is provided though for unmarried couples, nor for separated couples who did not obtain the appropriate “property adjustment order”.

Good news for children with deputies under the Mental Capacity Act

The rules have been changed so that if a property is held by a deputy for a child then it will not “count against” the parents of the child.  For example a child injured at birth might have a substantial settlement held by a deputy who might buy a house on behalf of that child where suitable care can be provided.  The parents would be able to buy a property without the property held by the child’s deputy counting against them.

Good news for some transfers between spouses

There is a tightly defined exception from the surcharge for some transfers of properties between spouses and civil partners.  It is not uncommon on a remortgage for a lender to require an existing property to be put into joint beneficial ownership.  Sometimes a proportion of the mortgage debt has been subject to SDLT.  In some cases at least the higher rates will not apply to this amount.  There is a requirement that the parties are still living together, so it would not work for cases where the parties are separated in circumstances likely to be permanent.

But there is no requirement that they are living in the property in which the interest is transferred.

For professional advice on SDLT, please get in touch.

Originally posted by John Shallcross on 18 May 2018 and updated on 20 June 2019.