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Writer's pictureAlan Pink

How to Save 3% Stamp Duty

Or rather Stamp Duty Land Tax (SDLT), which you now pay when you buy property.


From being a comparatively minor annoyance when buying property, SDLT has become a major scourge of the property investment “industry”. And one of the worst recent changes is the addition of another 3% if you own any other property. With the way property prices have gone up and up in the recent past, 3% extra is turning into a lot of money. So what are your options, if you’re buying a residential property (the 3% doesn’t apply to commercial) and you already own another such property?


1. Replacement for Main Residence


If you sell another property within a set period (basically three years before or three years after) buying the new one, and the new one is for you to live in, you can claim relief against the 3%.

Matilda sold the flat she lived in October 2019, and because there is so little equity in it, the money soon disappeared. She rented a flat until the end of 2021, when she got a legacy from her parents enabling her to put down a deposit for a new house. This she eventually managed to complete on in August 2022, and enabled her to claim relief against the 3% extra Stamp Duty Land Tax. The reason she had been liable for this was because her parents had also left her, with her siblings, a one-third share in their home, which was still owned at the time she bought the new house.


Griselda decides to buy a new house, but retain her old house as an investment. The new house purchase lands her in for the extra 3% SDLT; but after a couple of years she sees a new investment property that she wants to buy, which would involve selling the old one (which used to be her home). This strategy has the bonus that, providing the old home is sold before the third anniversary of the purchase of the one she is now living in, she will receive a refund of the extra 3% that she paid when she bought that new house. Clear?

The basic rule is that the 3% surcharge applies unless the residential property being bought is either the only property that person owns, or is a replacement for their main residence. So you can get some fairly perverse results from the way the rules are structured, as shown in the following example.

Annie owns a one-quarter share in a small flat, with her three siblings. They inherited this on their parent's death and decided to retain it as an investment. When Annie gets to the age of 21, she decides that she would like to buy her own home, and so she approaches a mortgage company for a loan and saves up the money for a deposit. Unfortunately, the effect of her already owning a share in the residential property inherited from her parents means that she has to pay the 3% SDLT surcharge on the flat she finds; even though she is actually buying it as her own home.

Perversely, if the new flat had been a replacement for her home which Annie had previously owned and lived in, this extra 3% wouldn’t have applied.



2. Spreading Property Ownership Around the Family


In the same way that you can reduce your income tax and capital gains tax by spreading ownership of assets around the family, the 3% SDLT surcharge can also be avoided in this way. Apart from your spouse or civil partner, arranging for any other member of your family or household to buy the next buy to let property could mean that you can make use of the fact that they haven’t got any other residential property investment at the time of purchase, and therefore are excluded from the 3% surcharge.



The Smiths are a very unified family, to the extent that anything that any family member owns is treated as effectively belonging to the whole family. Mr and Mrs Smith senior own the family home, and indeed a fairly extensive property portfolio, but are put off the idea of extending the family property holdings by the extra 3% SDLT they would pay. So the next residential property purchase is made in the name of Alan, the eldest son, the second in the name of Bernie, the eldest daughter, and the third in the name of Charles, another scion of the family. None of these purchases, of course, are liable to the 3% surcharge because none of the purchasers, themselves, have any interest in any other residential property investments.


3. Buying As Nominee


In the example of the Smith family, everything was easy because there were adult members of the family who were free of the “taint” of any other residential property ownership. But sometimes it’s not so easy as that; the person may be too young to be entrusted with direct ownership of property, or may not be able to support a loan in today’s very strict environment for mortgage advances. In this situation, consider, subject to legal advice being favourable, buying the property in the name of someone who is able to own the property, raise the mortgage etc, but as nominee for the other person who isn’t in that fortunate position. SDLT, like most taxes “looks through” a nomineeship situation to the “true” underlying owner. So if A buys a property as nominee for B, the SDLT treatment will be the same as if B had bought that property in a straightforward fashion. You get the idea. By selecting a “B” who hasn’t got any residential property in their ownership, you can avoid the 3% SDLT surcharge. As always in these situations (and also in the situation of the Smiths shown above) you have to bear in mind the effect of putting a property into someone’s name which is that any future property they buy, including their own home, would have the 3% surcharge on it.


4. Buying on Trust


Avoiding the 3% surcharge by buying as a bare trustee for someone else is an idea which can be extended to “fully clothed” trusts. If you buy a property as trustee for someone else who has a life interest or the entitlement to live in the property as their residence, then that is treated for SDLT as being equivalent to that person, the beneficiary of the trust, buying the property.


Alice and Victor have a disabled son Terence, for whom they decide to buy a flat. They don’t want to give up all claim over the money used to buy the flat, though, because they have two other sons to whom it would be unfair if they allocated as much money as is needed purely to Terence’s benefit. So instead of simply giving the money to Terence to buy the flat, they put the money on trust, in a trust in which Terence is a life tenant. Therefore, when they buy a flat in that trust (the trustees who become the legal owners of the flat, being Alice and Victor) the SDLT rules, including the rules relating to the 3% surcharge, mean that it is the same as if Terence himself was buying the flat. Since he has no other residential property interests, the purchase is free of the 3% surcharge.


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