Psychologists have long known that, as the journalist and author Alex Bellos has put it, “three is the largest quantity – when it comes to collections of items – that we can grasp without counting”. Indeed, it may be no coincidence that three is an iconic number in civilisations across the globe and in particular in Western thought, theology and rhetoric. The number three however may be about to take a tumble in our estimation as it comes to represent the additional stamp duty land tax (SDLT) which the Government is proposing to levy on the purchase of so-called “additional” residential property. The plan is that the change should take effect for transactions completed from 1 April 2016.

On 28 December 2015, the Treasury published a consultation document which describes the proposed architecture of the policy and its purpose and concludes with 21 questions to which any interested party is welcome to give responses. A key headline is that the policy has an unwarranted impact on locals with a second home abroad and on resident non-domiciliaries retaining a property abroad in (say) their country of origin.


By way of background, in 1995/6 stamp duty (as the tax was then called) was chargeable at one per cent on total values over £60,000. There was no charge below that figure.

In 2005, the base threshold doubled to £120,000 to assist first time buyers and the various thresholds created in 1997 and the top rate of four per cent, first applied in the year 2000, were maintained. The top rate applied to transactions exceeding £500,000. In 2011, a top rate of five per cent was brought in for transactions over £1m while seven per cent came in for transactions over £2m in 2012. The rates and calculation method for the tax were completely reorganised in December 2014 to remove the so-called “slab” effect and apply the tax at graduated rates going up from two per cent on values over £125,000 to 12 per cent on transaction portions exceeding £1.5m.

An independent rate of 15 per cent now also applies to acquisitions by so-called “non-natural persons” on chargeable consideration exceeding £500,000 with effect from 20 March 2014 (the threshold for the rate having previously been set at £2m). Clearly, governments of all colours have realised that residential real estate in the UK is capable of being something of a cash cow.


The Chancellor’s Autumn Statement and the consultation document show how political the property market has become – and not simply for its revenue raising possibilities: the basis for the policy announced by the Chancellor is a so-called five point plan, one of whose features is an attempt to extract more revenue from the buy-to-let and second home sector, with a view to improving the availability of affordable housing, equity loan and help-to-buy and equivalent schemes.


How does the policy aim to achieve this? In simple terms, the plan is to apply a three per cent surcharge on the otherwise headline SDLT rates where the transaction giving rise to the SDLT has certain features. The Government estimates that the policy will not affect 90 per cent of conveyancing transactions and in particular will not affect the iconic first time buyers purchasing their first property or even homeowners moving from one main residence to another. It is also not intended to affect large scale investors or multiple purchases (which will be more leniently treated).

In simple terms, the Chancellor wants to levy an extra three per cent SDLT on transactions where at the completion date the buyer holds more than one residential property (with limited exceptions for scenarios where the buyer is “replacing” a main residence). There are no special exceptions for different uses of the property (e.g. a second home or a split main residence versus buy-to-let): the only qualification is that it be residential property. Equally, there will be no capacity to elect which is your “main residence” (unlike for CGT).


Those who will be affected, however, are those who may have several properties they occupy, those who have one main residence and other buy-to-lets or co-investments and those who have exclusively buy-to-lets.

 Two important categories of buyers are particularly adversely affected. The first are life interest trust beneficiaries and the second are buyers who already have a property outside the United Kingdom.


Starting with trust beneficiaries (in the widest sense), the plan is as follows:

  • bare trustees: the acquisition will be treated as though it were made by the individual, so whether the three per cent surcharge applies or not depends entirely on the status of the individual;
  • life interest trusts (otherwise known as interest in possession trusts): the relevant beneficiary will be treated as the owner and so again it is the status of the beneficiary which determines whether the three per cent charge applies or not;
  • discretionary trusts (and equivalent interests such as remainder interests): whilst the Government does not intend to attribute the status of a beneficiary here, they nevertheless intend to apply the full three per cent surcharge to the trustees.

Accordingly, there will be scenarios with bare trusts or life interest trusts where the surcharge does not apply (because the property acquired by the trustees is the only property attributed to the relevant underlying beneficiary). This sounds like good news; however, as soon as that beneficiary separately acquires in his or her own name another property, be it another main residence or a buy-to-let property, the new three per cent surcharge will be applicable to the acquisition made in their own name unless there is an exception (such as replacement). The same will be true if the beneficiary already owns residential property before the trust makes the acquisition.


The consultation paper deals specifically in paragraph 2.12 with property bought or owned in Scotland or the rest of the world (since SDLT only applies in England and Wale and Northern Ireland). The consultation paper contains the unhelpful sentence “property owned globally will be relevant in determining whether a property purchase in England, Wales or Northern Ireland is an additional property”.

 The examples given in the consultation demonstrate that the simplistic logic of the policy applies entirely predictably: for example, the exemption which is available for “replacing” a main residence will apply if the replacement property is in England, Wales or Northern Ireland and the property being replaced is outside the UK entirely. At the same time and conversely, if (for domicile or other good reasons) you retain a property outside the UK, that will count in measuring whether or not the policy gives you a three per cent surcharge on your UK acquisition.

It is clear therefore that (as the policy is currently constructed) the Government intends by implication that a resident non domiciliary acquiring a property in the UK whilst retaining a property overseas will suffer the three per cent charge at the higher rates (see table below).

Click here to view table


The SDLT on the top band will amount to the same rate of SDLT that is paid by a “non-natural person” acquiring, albeit a non-natural person pays 15 per cent on the total amount. Nevertheless, it is clear that (subject to the unusually-worded paragraph 2.20 of the consultation) the differential between corporate and non-corporate acquisition has narrowed considerably if the policy is implemented as described. Paragraph 2.20 suggests that, to prevent a potential tax avoidance opportunity arising, the first acquisition by a company (however that may be defined) will attract the three per cent surcharge: this presumably means even if it is below the rate at which a company already pays 15 per cent, but does it mean that on a purchase over £500,000, a company would pay 18 per cent?! Watch this space.


Another unhelpful feature of how the policy operates is that married couples and civil partners (unless formally separated) will be adversely affected: they will be within the ambit of the policy as a couple if one of them has a second property. That second property will be attributed to the couple in the count of properties at the end of the relevant transaction. To give an example, if civil partners A and B acquire a main residence and at the end of that transaction civil partner A retains his former property, A and B together will be deemed to have two properties and the three per cent surcharge will apply, even though A’s property does not belong to B. 

The same rule applies to joint acquirers who are not in such a relationship, e.g. siblings or parents and children. If, for example, mother and daughter acquire a property together as the daughter’s first home, the mother retaining her original main residence, the transaction as a whole will face the three per cent surcharge. By contrast, the consultation document contemplates that the mother (in the alternative) lending the deposit and guaranteeing the mortgage will not bring the three per cent into play.


The policy consultation document contains much other detail, including in relation to partnerships (treated as joint owners) as well as exemptions for large-scale investors and multiple simultaneous transactions.

The consultation period closes on 1 February 2016 and the Budget is expected on 16 March 2016. It is unlikely that HMRC will have had time to assess in depth any consultation responses so it remains to be seen whether any serious changes to the policy will be adopted in the Chancellor’s Budget. In the meantime, advice will be needed in relation to transactions completing on or after 1 April 2016 (unless the exchange of contracts in question took place on or before 25 November 2015).