Stamp duty land tax, 3% surcharge, three year period running out?

4th May 2020

The operation of the rules for the 3% surcharge is complex. One current concern relates to the three year rules. These can apply where someone retained their old home when buying their new home and therefore had to pay the extra 3% SDLT.

Examples are people who:

  • rented out the old home whilst living in the new home
  • allowed family members to live in the old home
  • needed to live in the old home while works are carried out on the new home.

Ability to reclaim the extra 3% SDLT

If within three years of buying the new home there is a complete disposal (normally a sale but it could be an outright gift) of the old home then the 3% surcharge paid on the new home can be recovered by application to HMRC.

Three year time limit

The legislation sets out an absolute time limit of three years for the disposal of the old home, with no provisions for extension in exceptional cases.

People in this position who are getting close to the end of the three-year period will be concerned now that they may not be able to complete a sale of the old home within the three-year period. There are no provisions within the Coronavirus Act 2020 giving power to extend the three-year period.

There are provisions built into the stamp duty land tax legislation (Finance Act 2003 section 109) which allow regulations to be made “in the public interest” for the variation of the legislation. It is possible that the period will be extended, but this seems far from a priority. Three years could be said to be a generous period, given that in Scotland the equivalent period is 18 months, matching that originally proposed in the 2015 consultation.

At the SDLT Working Together Stakeholder Group meeting of 23 April 2020, HMRC’s head of Stamp Taxes said that three year time is being “looked at” in Government. He could not say more than that. 

Meanwhile in Scotland, a statement of 28 April 2020 by the Scottish Cabinet Secretary, Michael Russell MSP, says that a further Scottish Coronavirus Bill is to be brought forward and will include provisions to “overcome some problems with statutory deadlines“.  The statement reads: “Reflecting the realities of our housing market, for those who had paid the Land and Buildings Transaction Tax (LBTT) Additional Dwelling Supplement prior to a particular date, the Bill will extend the time period during which a previous main residence must be sold in order for them to claim a repayment from Revenue Scotland.”  The “Additional Dwellings Supplement” is the equivalent of the 3% surcharge in England, though in Scotland it was increased to 4% from 25 January 2019.  No indication has been given of how long the extension will be for.  It will be interesting to see whether it will be of retrospective effect, “saving” cases where on the face of it, the deadline to sell the “old home” has already passed.

Possible solution for let property

Occasionally there might be a solution, although not an easy one. This might be worth considering where both:

  • (a)  The old home is worth much less than the new home and
  • (b)  Where there are good family and / or practical reasons for proceeding. For example this might apply where the old home has been rented out and, in view of the current market conditions, a decision is made to retain the property longer term as an investment.  In this scenario thought should be given to the best way of holding the old home.

A potential solution would be to make a complete disposal of the old home, perhaps to a limited company controlled by the property owner which would then carry on letting out the old home. If this is a genuine transaction, a transfer to a limited company should qualify as a complete disposal of the old home; but it has its own practical and tax consequences.

One of these tax consequences is that the company must pay stamp duty land tax on the old home based on its market value. The rates of tax which apply are the residential rates with the extra 3% (or even potentially at a flat 15% flat rate if the property is worth over £500,000). Other implications include:

  • Capital gains tax.
  • Income tax and corporation tax if the old home is rented out.
  • It might take some considerable time to arrange if there is existing mortgage borrowing secured against the old home.
  • How the transfer to the company is to be structured (for shares, for cash, for debt, or a combination).
  • The costs of running a company.


Sandra kept 22 Acacia Avenue which she had been living in when she bought The Old Mill to move into. She has been renting out 22 Acacia Avenue since.  The price of The Old Mill was £1,000,000, so Sandra paid an extra £30,000 SDLT because of her keeping 22 Acacia Avenue.

If within three years of buying The Old Mill she makes a complete disposal of 22 Acacia Avenue to Sandra (22 Acacia Avenue) Limited when it is worth £200,000, the company has to pay SDLT of £7,500. But Sandra should then be able to recover from HMRC the £30,000 she paid if the transfer is a genuine disposal made for real practical and commercial reasons.

This piece was originally posted on 6 April 2020 and was updated on 4 May 2020.

These notes are intended for general information purposes only and do not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.

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