07 Jan 2016

CAPITAL letters - Issue 11


Stamp Duty silliness

Happy New Year to all our readers and, if you are embarking upon a "Dry January" – cheers!  I had intended to endure a Dry January myself but my resolve crumbled at only 5pm on New Year's Day (not impressive, I know), which is when I left the cinema, having wasted nearly three hours of my life watching 'Star Wars: The Force Awakens'. My body was in serious need of anaesthetics and a gin and tonic was quickly identified as the appropriate medicine.  By way of recompense, I have invented Sober Saturdays™ as there are 52 of those in a year, as opposed to only 31 days in January, meaning that my body gets 21 more alcohol free days in a year. Of course, this only works if you normally drink every Saturday, as every tax lawyer does.

New, improved Stamp Duty?

I returned to my office in the New Year and found on my desk, like an unwelcome house guest, a copy of the Treasury's brand new consultation document on the SDLT surcharge. It wasn't the way I had planned to start the New Year, but I did read through the whole thing, so that you don't have to. In the introductory section there is a wonderful piece of double-think, only possible from skilled politicians, in which we are told that the new 3% SDLT surcharge is an expression of the government's commitment to "supporting home ownership". It seems that increasing taxes on house purchases will make it easier for people to buy houses. This will be achieved by virtue of the fact that the surcharge will only apply to second homes and buy-to-lets, which is supposed to make 'main residences' easier or cheaper to acquire.

The rules are complicated (of course) but the broad brush is that if you already own a residential property then when you buy a second (or third, or fourth) then there will be a 3% surcharge, on top of the normal SDLT rate unless the new property is replacing your existing main residence. There is some relief for people who do not enter into a simultaneous completion on a sale and purchase of a main residence, which essentially allows you 18 months to either sell the original main residence or to move into the new property if there is an overlap. If this is your 'first purchase' then the surcharge will not apply (unless you are a trust or a company or a fund – see below).

Most people are used to the fact that there is a SDLT threshold of £125,000, below which there is no SDLT to pay. This surcharge does not respect that threshold, meaning that purchases under £125,000 will be liable to 3% from April 2016, rather than 0% now. There is, however, a de-minimus of £40,000, which will buy you precisely nothing in today's markets. The surcharge only applies to property in England, Wales and Northern Ireland, although the Scots have said they will follow suit shortly. Finally, remember that this surcharge will not apply to non-residential property, or mixed use property.


Discretionary trusts will nearly always be liable to the surcharge, even if the trust is making a 'first purchase'. However, if the trust has an interest in possession in favour of a particular beneficiary then provided that beneficiary does not own another residential property the surcharge will not apply. These rules apply equally to UK and offshore trusts. Given that most offshore trusts are discretionary in nature this means that many trustees will need to start granting interests in possession.

Companies and funds

First purchases by companies and funds will always be subject to the surcharge as HMRC has identified a risk that people might otherwise use companies/funds to avoid the surcharge.

Foreign buyers 

Even if you are not resident in the UK you will still be subject to these rules. So, if your main residence is in Dubai and you purchase your first property in the UK then, unfortunately, you will be caught by the surcharge. This is because the UK property will be a second home, notwithstanding that your first home is outside the UK. Sneaky!

Joint buyers / partnerships

The current idea is to levy the surcharge on the whole value of a property even if only one of the joint purchasers (or in the case of a partnership, only one of the partners) has an existing property. So, let's say that four people are clubbing together to buy a property worth £2m, three of them have no existing property, but one does. This would lead to a surcharge, payable by all of the purchasers of 3% on their share of the property. HMRC wonders aloud whether this treatment would be fair. I'm speechless.

Inheritance / gifts

HMRC has confirmed that a gift of a property to someone who already holds a residential property will not be subject to the surcharge. This is because there is generally no SDLT on gifts. This is the closest I can give you to good news.

Large scale investors

HMRC has not really wrapped its brain around this issue yet. There is talk of exempting investors that already have 15 residential properties, be they companies or individuals, but no conclusion on this point was forthcoming. However, we are told that the existing multiple dwellings relief (MDR) will continue as before. For those not familiar with MDR (for which you are forgiven) – this applies to any purchaser who acquires 6 or more residential properties in one transaction, in which case you can choose to apply the non-residential rate (4%) or take the average cost of each units and apply the normal rates residential rates. In most cases you would apply the non-residential rates, unless the average value of each unit is below £250,000.

Buying properties for children

It is cheerfully stated that "the government appreciates that in many cases individuals and couples may help their children to get onto the property ladder", which initially sounds promising, but then we are told that such blatant displays of parental love will be punished with the 3% surcharge. This means that if you wish to buy a property for your child then it is best done by way of a loan arrangement (so that the child buys subject to a debt to the parent) or through the use of an interest in possession trust rather than in joint names.


The expressed policy objective of this new surcharge is to "support home ownership and first time buyers" but it must be said that if the government really wanted to help these people it could do something a little more obvious like reduce SDLT for first time buyers, rather than punish other home owners. When I first started practicing law stamp duty was a flat 1% on all purchases, which was little more than an irritation for most buyers, so it's difficult to believe that we now have a top rate of 15% for properties worth over £1.5m (the 'normal' rate of 12% plus the 3% surcharge). Bearing in mind that first time buyers are generally not fishing in the prime and 'super prime' property pool, it is difficult to see how imposing the highest stamp duty rates in Europe (and possibly the World) is going to do anything to help those people. It is also interesting to note that since the SDLT rates were substantially hiked last April the deal volumes in the prime and super prime markets have dropped by a substantial margin, leading to a huge reduction in SDLT receipts. So, as a policy objective, this measure fails and as a tax raising measure it also a miserable failure. One has to ask – what is the point?

Household tip

This is a really great tip for organising your clothes drawers.  Most of you probably 'file' your clothes horizontally in your drawers, which means one garment laid on top of another, and so on. The consequence is that you can only see the top 'filed' garments (and wear that) or you have to go digging to see what's underneath, thereby creating an unholy mess. The answer is to 'file' your clothes vertically in the drawer so that you can see what you have got at a glance. You're probably struggling to visualise this so, in a huge break with tradition, here is a photograph.

Vertical filing



James Quarmby

James Quarmby

T:  +44 20 7809 2364 M:  +44 7958 776 759 Email James | Vcard Office:  London

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