Married Couples, Co-Habitees And The Stamp Duty Land Tax 3% Charge

Malcolm Finney examines whether it’s better to be married or co-habit in terms of the 3% additional stamp duty land tax charge.

On the acquisition (whether by way of gift, inheritance, or purchase) of a residential dwelling (e.g. a house or flat), a charge to SDLT in principle arises (but only if there is charge consideration given). In certain cases there is, in addition to this normal SDLT charge, an additional levy of an extra 3%.

This 3% additional charge arises (subject to exceptions) where, on acquiring the dwelling, the acquirer has beneficial interests in two or more dwellings.

Where only one of the spouses purchases a dwelling, it is assumed (for the purposes of the 3% SDLT charge) that the other spouse is a joint purchaser (even though this is not, in fact, the case). If either (or both) of the spouses satisfies the conditions for the 3% charge to apply, it then applies to the whole transaction.

Tom and Tina are a married couple. Tom owns the dwelling in which they live.

They decide to purchase a buy-to-let property but agree that Tina should buy it, i.e. Tina is a sole purchaser.

Tina only owns one dwelling as does Tom.

However, under the above rule, Tom is ‘deemed’ or ‘treated’ as also being a joint purchaser with Tina. Tom is, thus, now treated as having beneficial interests in two dwellings.

As a consequence, the transaction (i.e. the purchase of the buy-to-let) becomes subject to the 3% charge.

Assume that Tom and Tina having bought the buy-to-let then decide to sell their home (owned by Tom) and Tina alone will purchase another home for them to live in. Once their current home is sold and a new home purchased they will, again, still own two properties and hence the 3% charge would, in principle, apply to the purchase of their new home. However, there is an exemption from the 3% charge (subject to satisfying a number of conditions) where a new purchase is, in fact, a replacement for another home, which in this case it is. 

One of the conditions which must be satisfied is that prior to the purchase of the new home (by Tina), either Tina or Tom must have sold a beneficial interest in their former home, which Tom has done (in certain circumstances, a new home may be purchased before the ‘old’ home is sold).

Assume the same facts as in the example above, but Tom and Tina are not married but are co-habitees. 

When Tina purchases the buy-to-let property, she is the sole purchaser. For co-habitees, there is no rule under which the other non-purchasing co-habitee is deemed or treated as also being a joint purchaser. As Tina only owns one property (the buy-to-let), the 3% charge does not apply to it. However, had Tom and Tina jointly purchased the buy-to-let, Tom would then have owned two properties and the 3% charge would then apply to the whole transaction (not just his or her part of the purchase).

Continuing the example, assume that once Tina had bought the buy-to-let they decide to sell their home (owned by Tom) and purchase another home to live in. Tina is to buy the new home. Once their current home is sold and the new replacement home purchased, Tina will own two properties and hence the 3% charge would in principle apply to the purchase of the new home. However, there is an exemption from the charge (subject to satisfying a number of conditions) where the new purchase is a replacement for their home, which it is. But one of the conditions which must be satisfied is that prior to the purchase of the new home, Tina (not Tina or Tom as applied above to a married couple) must have sold a beneficial interest in their former home, which she didn’t do as this had been owned only by Tom.

Typically, inter-spouse transfers for no consideration are not subject to the 3% charge (or indeed the basic SDLT charge). Even if one spouse purchases a beneficial interest in a property from the other spouse for consideration the 3% charge does not apply (although the basic SDLT charge will apply). This applies whether the purchasing spouse already has a beneficial interest in another property.

Transfers for no consideration between co-habitees are not subject to the 3% charge (or indeed the basic SDLT charge). However, if one co-habitee purchases a beneficial interest in a property from the other co-habitee for consideration, the 3% charge will apply (assuming the purchasing co-habitee already has a beneficial interest in another property).

The rules determining whether the 3% SDLT charge applies are complex. Married couples and co-habitees may be treated differently depending upon the nature of the transaction and the underlying facts; sometimes the rules favour married couples and sometimes co-habitees.