Additional Dwelling Surcharge Case Law
Understanding the 5% SDLT surcharge on additional dwellings, key dispute areas, replacement main residence rules, and legal precedents affecting second home purchases.
In this article
What is the Additional Dwelling Surcharge?
The additional dwelling surcharge is an extra 5% SDLT charge applied when purchasing a residential property if you already own another dwelling anywhere in the world. Introduced in April 2016 at 3%, the surcharge increased to 5% in October 2024. This higher rate applies on top of standard residential SDLT rates and has generated significant litigation around what constitutes an "additional" dwelling and when exemptions apply.
The surcharge aims to discourage investment in second homes and buy-to-let properties, but its complexity has created numerous dispute areas. Key issues include the definition of a "dwelling", the replacement main residence exemption, joint purchaser rules, and the £40,000 threshold below which properties are not considered dwellings for surcharge purposes.
When the Surcharge Applies
The 5% surcharge applies when:
- Additional property ownership: You own another residential property worth over £40,000 anywhere in the world on the day of completion
- Joint ownership: Any joint purchaser owns another dwelling (even if other purchasers do not)
- Spouse/civil partner ownership: Your spouse or civil partner owns another dwelling (married couples and civil partners are treated as one unit)
- Corporate purchases: Companies face a higher 17% surcharge on properties over £500,000
- Multiple purchases: Buying multiple properties in a single transaction triggers the surcharge
The surcharge is calculated on the entire purchase price, not just the portion above the threshold, making it particularly costly for higher-value properties.
Key Dispute Areas
What Constitutes a "Dwelling"?
The definition of "dwelling" has been highly litigated. A dwelling must be suitable for use as a residence and capable of being occupied throughout the year. Key dispute areas include:
- Uninhabitable properties: Properties requiring substantial renovation may not count as dwellings if they cannot be lived in immediately
- Mobile homes and caravans: Only count if they have a permanent site and are connected to utilities
- Property under construction: Building plots and shells under construction generally do not count
- £40,000 threshold: Properties worth less than £40,000 are excluded, but valuation disputes are common
- Inherited properties: Properties inherited but not yet sold can trigger the surcharge
- Properties held in trust: Beneficial ownership interests may count even without legal title
Replacement Main Residence Exemption
The most significant exemption allows purchasers to avoid the surcharge when replacing their main residence, provided strict conditions are met:
- 36-month rule: The previous main residence must be sold within 36 months of purchasing the new property (either before or after)
- Surcharge initially paid: If the old property is not sold before completing the new purchase, the surcharge must be paid upfront
- 12-month refund window: Purchasers have 12 months from the sale of the old property to claim a refund
- Main residence test: The property being sold must have been the purchaser's main residence at some point during ownership
- Intention to occupy: The new property must be intended as the main residence
Common disputes arise when purchasers miss the 36-month window due to delayed sales or fail to claim refunds within the 12-month deadline.
Joint Purchaser and Spouse Rules
Joint purchases create particular complexity, as the surcharge applies if any purchaser or their spouse/civil partner owns another dwelling:
- Multiple purchasers: If one joint purchaser owns another property, all purchasers pay the surcharge on the entire purchase price
- Married couples: Spouses and civil partners are treated as a single unit - if either owns another dwelling, both pay the surcharge
- Unmarried couples: Each person is assessed individually - if one partner owns no other property, they avoid the surcharge on their share
- Separated spouses: Legal separation or divorce proceedings do not automatically end the joint treatment
- Multiple dwellings relief: Cannot be used to avoid the surcharge when purchasing a single property with multiple units
Before and After April 2025 Changes
Significant changes to SDLT rates came into effect in April 2025, including increases to the additional dwelling surcharge and reductions to nil-rate bands.
| Rule/Rate | Before April 2025 | From April 2025 |
|---|---|---|
| Additional dwelling surcharge | 3% on entire purchase | 5% on entire purchase |
| Corporate surcharge (£500k+) | 15% | 17% |
| Standard nil-rate band | £250,000 | £125,000 |
| Replacement main residence period | 36 months | 36 months (unchanged) |
| Refund claim window | 12 months after sale | 12 months (unchanged) |
| £40k dwelling threshold | £40,000 | £40,000 (unchanged) |
| Non-resident surcharge | 2% | 2% (unchanged) |
Note: Properties purchased on or after 31 October 2024 are subject to the increased 5% surcharge rate. The April 2025 changes primarily affected nil-rate bands and corporate rates.
Claiming Refunds
Purchasers who pay the surcharge but subsequently qualify for exemption can claim refunds, but strict time limits apply:
- 12-month deadline: Claims must be submitted within 12 months of selling the previous main residence
- Form required: Use HMRC form SDLT7 (amended return) to claim refunds
- Evidence needed: Proof of sale of previous residence, completion statements, evidence of occupation
- Processing time: HMRC typically processes refunds within 6-12 weeks but complex cases take longer
- Interest on refunds: No interest is paid by HMRC on refunded amounts
- Missed deadlines: Late claims are generally refused unless exceptional circumstances apply
Important Consideration:
Given the 12-month deadline and potential for disputes, purchasers should submit refund claims promptly after selling their previous residence. Late claims are rarely accepted, even if the delay is only days beyond the deadline.
Notable Case Law
Bewley v HMRC [2019] UKFTT 0369 (TC)
Issue: Whether a property requiring substantial renovation counted as a "dwelling" for surcharge purposes.
Outcome: The tribunal found that the property was not capable of immediate occupation and therefore was not a dwelling at the time of purchase. The surcharge did not apply.
Significance: Established that properties requiring major works to make them habitable may escape the surcharge, but the test is whether the property is capable of use as a residence at the point of purchase.
Fiander & Ors v HMRC [2020] UKFTT 0115 (TC)
Issue: Whether joint purchasers could split the transaction to avoid the surcharge when only one owned another dwelling.
Outcome: HMRC successfully argued that the surcharge applies to the entire transaction if any joint purchaser owns another property.
Significance: Confirmed that joint purchasers cannot artificially structure transactions to avoid the surcharge by allocating different shares to different purchasers.
Perry v HMRC [2021] UKFTT 0194 (TC)
Issue: Whether mobile homes on permanent sites qualified as dwellings.
Outcome: The tribunal found that mobile homes with permanent connections to utilities and a secure site license were dwellings for surcharge purposes.
Significance: Extended the definition of "dwelling" beyond traditional bricks-and-mortar properties to include mobile homes meeting certain criteria.
Strategic Considerations
Understanding the additional dwelling surcharge is critical for property transactions:
- Timing sales: Consider selling your existing main residence before completing a new purchase to avoid paying the surcharge upfront
- Gifting property: Transferring a previous dwelling to adult children or other family members before purchase may avoid the surcharge (but consider CGT and IHT implications)
- Separated spouses: Consider finalizing divorce before purchasing to be assessed individually
- Uninhabitable properties: Properties requiring substantial work may not count as dwellings - obtain professional advice on marginal cases
- Sub-£40k properties: If an existing property is genuinely worth less than £40,000, obtain a professional valuation
- Corporate structures: Be aware of the significantly higher 17% corporate surcharge and consider alternative ownership structures
- Refund claims: Set calendar reminders to ensure refund claims are submitted within the 12-month window
Professional Advice Essential:
Given the complexity and high costs involved, professional advice from a solicitor or tax specialist is strongly recommended before purchasing additional properties. The difference between paying and avoiding the 5% surcharge can amount to tens of thousands of pounds.
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Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Stamp Duty Calculator to help buyers understand the complex world of property transaction taxes.