Stamp duty land tax (SDLT) 3% transitional rules could be your friend


The 3% SDLT surcharge broadly bites when a purchaser owns more than one residential property at the end of the day of acquisition – subject to various reliefs. This surcharge has now been around since 1 April 2016 but some house buyers are still being hit with an unexpected sting at the point of sale.

I am aware of a recent case where the purchaser was about to purchase a £2M home only to realise at the last minute that he would have £60,000 (3% of £2M) extra SDLT to pay. He had thought that even though he owned a small rental property he would be exempt from the 3% surcharge on the acquisition of a main home. However he was wrong (or was he? See below!) because this exemption only applies if the purchase is replacing a main residence which was used as such in the last 3 years. In this case the purchaser had been renting while he worked overseas.

Therefore there is a lot of bad news around the 3% surcharge but it is also worth bearing in mind some friendly provisional rules.


Contracts made before 26 November 2015

There are quite a few ‘uncompleted’ contracts in existence where exchange took place before 26 November 2015. These often relate to properties which were bought ‘off-plan’ on the payment of a deposit. On completion the 3% surcharge will not apply.


The replacement of main residence exception

The default replacement of main residence exception has the following key points:

  1. The purchased dwelling must be intended to be the purchaser’s only or main residence.
  2. Within the last 3 years the purchaser disposed of a major interest in another main residence which was a main residence in that 3 year period.
  3. The purchaser must not between the disposal that he is relying on and the new purchase have acquired a major interest in another dwelling intended to be his main residence.

There is however a transitional rule here too. If the effective date (completion) of the purchase of the new dwelling is before 27 November 2018 then the three year restriction does not apply and it does not matter how long ago the purchaser made the disposal of the old residence that he is relying on.

Therefore there was a happy ending for the purchaser mentioned above. On learning about this transitional rule he was able to point to a main residence that he disposed of 5 years ago and this meant that he could avoid the surcharge. This concession will end for completions which take place after 27 November.


Final word

In certain circumstances it could be very expensive for purchasers if completion delays beyond 27 November!





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