How Will The 3% Stamp Duty Surcharge Affect Let to Buy?

Written on 8 December 2015 by Ray Boulger

12 comment(s)

How Will The 3% Stamp Duty Surcharge Affect Let to Buy?

The following question received from a reader raises an interesting question which will be relevant to many others and so I thought publishing an answer on my blog would help others as well:

Q. My partner and I own our London flat outright, and want to buy a house to live in (i.e. as our primary residence) since we have young children and are outgrowing our current flat. We'd like to keep our flat as a rental investment, taking out a let to buy mortgage on it to use as the deposit for the new house.

Will we have to pay the 'extra' 3% SDLT announced in the Autumn statement for 2nd homes / buy-to-let properties on the new house since we already own our flat (and aren't intending to sell it)? Or would our new house just be subject to the 'normal' SDLT rate (since it will be our primary residence)?

A. Final details of exactly when the 3% surcharge will apply won't be announced until after a consultation period, which hasn't even started yet, and so it is likely to be well into the new year before we will know whether there will any exemptions for people in your situation.

However, based on what was announced in the Autumn statement anyone doing a Let to Buy will be caught, assuming you are not buying in Scotland, as that country has devolved powers on housing taxation and its rates are different.

The Chancellor's announcement was that anyone who already owns a property anywhere in the world will be subject to the 3% surcharge on any further properties they buy in England, Wales or N Ireland, regardless of the purpose of the purchase. This will apply to any completions after 31 March 2016 except where contracts were exchanged by 25 November 2015.

The only two exceptions which The Treasury has so far indicated are:

1) People who own at least 15 properties, on the basis the Government wants to encourage institutional landlords.

2) Anyone who already owns a property and buys another but sells one of them within 18 months. This is to cover the situation where people moving home can't co-ordinate the sale and purchase and also someone buying a property with a view to refurbishing it and then re-selling it. The indication is that in either of these situations the buyer will pay the 3% surcharge but will be able to reclaim it on a subsequent sale within 18 months.

Both of these exceptions are subject to the consultation and so the final rules may be different. Whilst there is always a possibility The Chancellor may decide to exempt Let to Buy doing so would seem to go against the principle of his new rule and therefore seems unlikely.

If you and your partner are married, and assuming you retain your current flat as proposed, the only ways it appears you can be confident of avoiding the 3% surcharge are to complete on the purchase by 31 March 2016 or buy in Scotland, although presumably the latter is not an option in your case.

One other possibility may be to transfer your current flat into an SPV (Special Purpose Vehicle), which is a limited company or limited liability Partnership formed specifically to acquire residential property. It is not yet clear whether this will avoid the 3% surcharge but as the flat is your principal private residence you could transfer it into an SPV without incurring capital gains tax. However, you probably would have to pay the normal stamp duty land tax (SDLT).

In view of the income tax changes announced in the summer budget there may be other benefits from 2017/18 of owning the property in an SPV, depending on your personal circumstances. You should take professional tax advice on this before making any decision but if the advice is to transfer the property to an SPV it will affect the remortgage process as many lenders to not lend to SPVs.

The reduced choice of mortgage lender may mean you don't qualify for the best value mortgage but we expect more lenders to accept applications from SPVs in the new year and so any increased mortgage payments, which will in any case tax deductible, are unlikely to sway the decision on whether to transfer the property to an SPV. If your tax adviser recommends transferring the property to an SPV we can advise you what difference, if any, it will make to your mortgage compared to leaving the property in your personal name, once we have full details of your personal circumstances.

If you are not married you have more options. In that situation it seems likely you will be able to avoid the 3% surcharge by either you or your partner owning the existing flat in a sole name and the new family home being purchased by the other person. There may be some SDLT to pay if the existing flat is jointly owned, and other tax benefits and / or disadvantages, and so again you should take professional tax advice before making a decision. Having either property in a sole name may complicate the mortgage options, depending on your individual personal circumstances, but although this might restrict the choice of lender we are usually able to arrange suitable mortgages, even in this situation.

Of course if prices fall after March as a result of the rush to buy by then the 3% surcharge might be compensated for by being able to buy at a lower price later.

Categories: Property market, Buy to let, Mortgages, House and home, Ray Boulger



We will need to wait until the final rules are published for a definitive answer to your question. These are expected in the Budget on March 16th and although I doubt the budget speech will clarify this point the full rules are expected to be published later that day.

The Chancellor is treating couples as one in terms of preventing avoidance on purchases and if the same logic applies you should be OK but unfortunately tax isn’t always logical!


Ray11/03/2016 09:02


Following the Treasury consultation on the 3% stamp duty surcharge, to which John Charcol contributed we are expecting full details in the budget on March 16th. However, based on the draft proposals Let to Buy will be caught.

Following the original announcement in the Autumn Statement, and subsequent criticism, there was some back tracking from The Treasury in that it conceded people already owning one or more properties in addition to their main residence who are selling their current main residence and buying another main residence would not have to pay the surcharge. As, by definition, anyone doing a Let to Buy will not be selling their previous main residence one can only hope that The Chancellor will respond favourably to some of the comments he received in the consultation.


Ray11/03/2016 09:02


My wife is remortgaging her buy to let property and in the process is transferring 50% equity to me. The idea is to reduce capital gains tax liability should we sell in future. We jointly own our main family home which is where we live.

If the transfer of equity and remortgage occurs after April 1st will we be hit by the new stamp duty hike of 3%? The buy to let property is worth £170k with £97k mortgage. It was bought for £122k.

Many thanks


Ed08/03/2016 16:02

From the government consultations and issued guidance, It's there any update on whether let-to-buys are indeed exempt from the extra 3% stamp surcharge which is coming into affect in April16?

Andrew03/03/2016 18:26


Your situation highlights one of the many flaws in the draft rules announced in his Autumn Statement. The Chancellor will announce the final rules in next month’s budget and unless there are significant amendments to reflect comments in response the Treasury consultation George Osborne's understandable obsession with preventing avoidance will result in people in your situation being unfairly penalised, against the spirit of the draft proposals. Furthermore, if there are not significant amendments reflecting the comments I believe it will be right to regard the consultation as a sham!

John Charcol submitted a response to the consultation. Our full response is on our web site, but the consultation Question most relevant to your situation and our Answer is this:

Q2: Do you agree that, where property is purchased jointly, if any of the purchasers in a transaction are purchasing an additional residential property and not replacing a main residence, the higher rates should apply to the whole transaction value? If not, how would you suggest the government treats joint purchasers?

"No. We believe it is unfair to charge any additional SDLT if any of the joint purchasers is not replacing a main residence. If one party is now acquiring a new main residence with another party acquiring their first main residence, additional SDLT should not be applied.
"At the very minimum there should be an exemption for family assisted purchases, including children purchasing a property for, or jointly with, elderly parents. This could be effected by stipulating that if at least one of the joint purchasers will use the property as their main residence then the higher rates do not apply."

Timing may not be on your side but the obvious way to avoid the 3% surcharge would be to rush completion through by 31 March. Failing that, making decisions without full knowledge of the final rules is always fraught with difficulty but based on the current proposals you would be caught by the 3% surcharge. To avoid this you could buy the property in your sole name but I expect you probably need both incomes to satisfy your lender’s affordability calculation, apart from a personal preference to own the property jointly. However, from a mortgage perspective there is a way you could address this problem. A few lenders will offer a mortgage on what we call a sole proprietor, joint borrower basis, which means only one person, i.e. you, would own the property but you and your partner would both be on the mortgage and jointly liable for it. You could then draw up a declaration of trust to formalise your partner’s interest in the property. If this approach interests you I suggest you both first discuss the pros and cons with your solicitor. If you then want to proceed on that basis it may mean changing any mortgage lender you have already chosen.

The other option would of course be for your partner to sell his BTL property. Based on the current proposals, if he does so within 18 months of your new purchase you could reclaim the 3% surcharge. However, you would have to pay it initially, which would obviously have cash flow implications.


Ray24/02/2016 14:13

Hi There,

I own a property and am selling it to buy another. However I am buying this property with my partner, who is not named on the deeds of the property I am selling, and who has a buy to let property in his name only .

I cannot find if the exemption of the stamp duty surcharge applies as it the new house is only replacing my main residence, but not my partners

Kind Regards,

Rebecca18/02/2016 13:31


The consultation document issued by the Government on Boxing Day! added some clarity to the situation using an SPV. It says:

As made clear in this consultation, where an individual purchases their first residential property the higher rates will not apply. If the government mirrored this treatment for purchases made by companies and collective investment vehicles this would create a potential tax avoidance opportunity.

In particular, an individual could purchase an additional property via a company to avoid the higher rates of SDLT.

To guard against this avoidance risk the government proposes that the first purchase of a residential property by a company or collective investment vehicle is subject to the higher rates of SDLT

Although we await the final rules on Budget Day (16th March), as you can see the Government has thought of this and so in general buying a property through an SPV will not avoid the 3% surcharge.

However, it appears likely the Government will exempt large landlords from the extra tax, with 15 properties currently being floated as the magic number above which one is deemed to be a large landlord. The Government seems to have plucked the number 15 out of the air and has not even tried to justify why this is a relevant figure and so it might change. They have also suggested at different times the exemption would apply to those buying at least 15 properties at one time or anyone with at least 15 properties who adds to their portfolio. Therefore, as you mention you already own some BTLs this exemption may help you but you will have to wait for the budget to know the final rules.


Ray01/02/2016 12:26

Hi Ray.
I was considering trying to get in before the 31st March deadline to try to avoid the surcharge, but since conveyancing can throw up unforeseen delays, I'm not confident I'd make it.

Another thought was to set up an SPV to purchase a new property.
This SPV obviously does not yet own a property, so this would be its first. Even if I - who already own properties - am the sole director, would the SPV have to pay the additional 3% if the purchase completes after 31st March?


Jason30/01/2016 16:49


Thank you for your question.

Subject to any changes to the proposed legislation The Chancellor announces in his 16th March Budget you are going to be what in another context the Government would call "collateral damage,” of this legislation, based on the current ill thought out proposals.

In its draft proposals The Government effectively admits it is prioritising preventing avoidance, which admittedly is important, over fairness. The result is that people in your situation who have conducted your affairs in a perfectly sensible way, which at the time had no adverse tax implications, will be penalised by what is, in effect, retrospective taxation.

In The Chancellor’s Autumn Statement even the 18 month grace period was not mentioned. This only came to light subsequently after awkward questions were asked of The Treasury about people with BTL investments moving home. The implication is that The Treasury had overlooked this and hurriedly cobbled together a response to mitigate the damage, including the political impact at the next election on the 2m+ BTL investors! Other examples in the draft proposals also suggest they were put together without proper due diligence, including publishing the consultation paper on Boxing Day.

Comments from The Treasury post the Autumn Statement suggest it doesn’t actually want to discourage people from genuinely buying a new main residence (in fact the proposals conflict with government policy in respect of people in your situation as it wants to encourage people to own their own home!) and so the key to getting these flawed proposals changed is finding a way to allow genuine purchasers of a new main residence, like yourself, to not have to pay the 3% surcharge, whilst not opening the floodgates to avoidance. I find it hard to believe competent draughtsmen, which the Government clearly has, can’t find a better way of addressing this issue to avoid unfairly penalising people like you.

I believe that because this proposed legislation has been drafted so inexpertly there is a real possibility, unlike with some consultations, of achieving changes to make it fairer, if The Treasury receives enough negative comments, combined with constructive alternative proposals, to the consultation. I would therefore encourage you to respond to the consultation paper but the deadline is Monday 1st February and so time is very short. You don’t have to answer all the questions, just the ones on which you wish to contribute. Although you may also choose to answer more questions I suggest the ones particularly relevant to your situation are 3 - 8.

If you do this I suggest sending a copy to your MP and, whatever your politics, also John McDonnell, as he may be able help by embarrassing The Chancellor.


Ray29/01/2016 11:43

WE are a married couple with children. We sold our house 3 years ago and moved into a rental property - the idea was to be a cash buyer when we eventually saw the kind of house in the area we wish to buy in - virtually essential in our area to be the selected buyer for any house that comes on sale - it is that kind of market!!. This has proved extremely difficult as there is an extreme shortage of housing stock in our city centre close to the school. Instead of getting virtually nothing for our cash in the bank, we invested a small portion of it in two buy to let houses so that at least we could get some return to offset against our rental costs. In the meantime house prices have soared in our area (incidental of course but it makes us feel bad). We now have seen a house we'd like to buy and can just about afford it without selling our two tiny houses in a much cheaper part of Britain. The new house will be our main residence - but we sold our last house 3 years ago. Will we have to buy a 3% surcharge to buy this new house? It seems so unfair.

Dixie28/01/2016 19:58


It was difficult to be completely confident of the answer to this question until The Treasury published more details, which it did on 28 December in a consultation document. The document states that:

"The higher rates will only apply to purchases of additional residential property which complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016. However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016, the higher rates will not apply."

It is clear from this that you exchanged in the nick of time and you will not have to pay the 3% surcharge.

Ray Boulger

Ray30/12/2015 09:12


I have exchanged contract on 25th November 2015 for a buy to let purchase due for completion end of 2016.
This is also the same day where the changes to SDLT for buy to let was announced on Autumn Budget statement.
Would I need to pay the higher new tax rate?


Alice09/12/2015 13:28

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