SDLT: Mortgage broker caught out by the replacement exception rules

3rd September 2019

The Stamp Duty Land Tax rules around the ‘replacement of main residence exception’ are complicated and caught out a mortgage broker, with a complaint against him being upheld. This blog takes a look at the SDLT analysis underlying the decision by the Financial Ombudsman Service.


There has been some publicity about a decision of the Financial Ombudsman Service upholding a complaint against a mortgage broker because of incorrect information given about the stamp duty land tax (SDLT) liability of a purchase and whether the higher rates of SDLT (the 3% surcharge) applied.

Existing articles focus on the responsibility of the broker for giving advice; this piece focuses on the underlying SDLT rules which had been misunderstood.

The facts

H and S each owned a property and both lived in H’s house; S was continuing to let out his property (which he owned jointly with a third party) to family members. H and S decided to buy a home together, selling H’s property and taking a joint mortgage. They asked the broker whether the higher rates of SDLT would be due. The broker emailed to say he had checked with a solicitor and that higher rates of SDLT would not be due if it was clear that S’s main residence was H’s property. He suggested S get registered on the electoral roll at H’s address and record it as the address for his bank account.

H and S exchanged contracts on their new home in November 2017, but were told by their solicitor the following month that the higher rates of SDLT were due. They had to borrow more money in order to complete the purchase.

Financial Services Ombudsman Adjudicator

The Financial Services Ombudsman’s adjudicator recommended the complaint by H and S be upheld on the basis that the broker gave the impression he was giving advice on SDLT and, if he wasn’t, he should have made it clear that H and S should double check with their solicitor. Because of that, it was reasonable for H and S to rely on what the broker had said without checking elsewhere.

Financial Services Ombudsman Decision

The decision of the Ombudsman, Jeff Parrington, was published on 6 June 2019 upholding the complaint. He said: “Whatever the limits on the broker’s remit should have been – and regardless of what areas any disclosure document said that remit did or didn’t cover – I’m satisfied Mr H and Mr S were reasonably entitled to treat the broker’s email of 26 October 2017 as advice on their SDLT liability. He didn’t say this wasn’t his area of expertise; and he didn’t say they needed to get advice from their solicitor. He simply said he’d checked the position with his solicitor, and told them what he thought they should do to ensure they didn’t pay the higher SDLT rate.

There’d be no reason for Mr H and Mr S to ask elsewhere for advice on SDLT; as far as they were concerned, they’d already asked and been told what they needed to know. In that context, I’m afraid Advance cannot evade liability for the consequences of the broker’s actions by saying Mr H and Mr S should have got the right advice from their solicitor; nor for any other reason, for that matter.
Advance’s broker was asked for guidance, and instead of saying it wasn’t his guidance to give, he gave it. Once he did that, the broker had a duty to ensure what he told Mr H and Mr S was correct, failing which Advance was liable for any adverse consequences they might suffer.

It also doesn’t matter whether Mr H and Mr S took the steps the broker recommended or not. That’s because registering on the electoral roll and changing the address on a bank account aren’t actions that would allow Mr S to meet the test of Mr H’s property being his main residence under the rules on SDLT.”

Replacement exception

It appears that the broker (and the solicitor who he had spoken to) went wrong in the application of the “replacement exception” to the higher rates of SDLT. The context for the replacement exception and the conditions for it to apply are explained in the CASE STUDY here. HMRC provide some guidance on the replacement rules at SDLTM09800 (this refers to “Condition D” for the higher rates to apply; it is by failing to meet Condition D that the replacement exception applies).

It seems that it was assumed by the broker to be enough to come within the replacement exception that S had lived in H’s house as his only or main residence and that S would move to the new property as his only or main residence.

In fact the rules are more complicated, with a number of conditions having to be met to come within the replacement exception. One of the requirements is a “disposal” of a “major interest” in a property the person had lived in as the person’s only or main residence. This was not the case for S who retained his former home. Nor could S rely on the sale by H of the property S had been living in, because S had no share in it and S and H were not married nor civil partners.

Main residence

The broker had suggested that S go onto the electoral roll for the property he was living in and amend his bank account to reflect his actual place of residence.  For a property to count as a person’s residence requires not just that he occupies it, but that he lives in it with “the necessary degree of permanence and expectation of continuity” (to paraphrase a line of cases in capital gains tax principal private residence relief interpreting the same words).

HMRC in their guidance at SDLTM09812 on the meaning of “main residence” refer to this permanence and expectation of continuity.  They set out some points to consider, which they say may be useful in establishing whether a property is a person’s main residence.  The following items from the list are of evidential value, but hardly go to the substance of the matter:

  • At which residence is the individual registered to vote?
  • Which address is used for correspondence?
  • Where is the individual registered with a doctor / dentist?
  • At which address is the individual’s car registered and insured?
  • Which address is the main residence for council tax?

The substance is much more to do with things like:

  • Where the person spends most of their time (when not working), especially where they spend most nights.
  • The centre of the person’s family and social life and the place habitually returned to for domestic existence.
  • Where the person’s immediate family live.
  • Where the person works.
  • Where any children go to school.
  • How the property is furnished and where the person’s belongings are.

The facts given on the Ombudsman’s decision do not make it clear whether, when S was living in H’s house, it was just seen as a temporary arrangement until they moved somewhere else, or whether S lived there with a sufficient degree of permanence and expectation of continuity for it to count as S’s residence.  That would only have helped with the SDLT position on the joint purchase however if either:

(a)  S had owned a share in H’s property or

(b)  S and H had been married or in a civil partnership.

A silver lining?

It is possible that S and H will be able to recover the extra 3% paid on the joint purchase if S sells his interest in his former home within the three years after the joint purchase completing.  The rules are summarised HERE.  There is a requirement that S had lived in his former home as his only or main residence at some point within the three years leading up to the completion of the joint purchase.

For professional advice on SDLT please contact Blake Morgan’s SDLT expert, John Shallcross.

This article is intended for general information purposes only and does not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.

Originally posted by John Shallcross on 3 September 2019.


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