Will an overseas bare ownership interest trigger the 5% SDLT surcharge on a UK home purchase?

Introduction

People often ask whether an overseas property interest counts when buying a home in England or Northern Ireland for Stamp Duty Land Tax purposes. The question becomes more complicated where the buyer does not own the foreign property outright, but instead holds a bare ownership interest while another family member has a usufruct or life interest. It also becomes more complicated if a spouse owns another dwelling abroad.

This matters because the higher rates of SDLT for additional dwellings can apply even where the other property is outside the UK. Buyers therefore want to know whether a foreign interest counts as a major interest in a dwelling, whether the value threshold is met, and whether there is any lawful way to avoid the surcharge.

The Question

A married couple living permanently in the UK plan to buy a home in the UK to live in as their main residence. One spouse already owns a dwelling overseas outright. The other spouse has an overseas interest in a property under a bare ownership arrangement, while a parent retains usufruct rights. They intend to keep the overseas properties.

The main questions are:

• If the new UK property is bought jointly, will the 5% SDLT surcharge apply because one spouse already owns another dwelling?
• If the new UK property is bought in the sole name of the spouse who only has the bare ownership interest overseas, does that overseas interest count as ownership of another dwelling?
• Could a trust structure or putting the property into the name of a minor child avoid the surcharge?

Nick’s Explanation

Nick’s core point was that the overseas property interest may count if it is worth at least £40,000. In anonymised form, his explanation was:

“If the overseas property interest is below £40,000 in value, it would generally not count as another dwelling for the higher rates. If it is worth £40,000 or more, it is likely to count and may trigger the surcharge.”

He also noted that buying jointly with a spouse who already owns another dwelling would normally bring the higher rates into point, because the SDLT rules test the position of the purchasers together.

On avoidance by trust or by using a child, Nick did not give a concluded view. That caution is sensible. These arrangements are highly technical, and in practice they often do not solve the SDLT problem, particularly where the parents are funding the purchase, arranging the mortgage, or retaining beneficial enjoyment of the property.

Nick also suggested exploring whether changing the ownership structure of the existing overseas interest might alter the SDLT position. That may be worth reviewing in principle, but any restructuring would need careful advice in both jurisdictions, because it could have tax, legal, succession and anti-avoidance consequences.

The Law

The higher rates of SDLT for additional dwellings are contained in Schedule 4ZA to the Finance Act 2003.

In broad terms, the higher rates apply to the purchase of a major interest in a single dwelling if, at the end of the day of purchase:

• the buyer owns a major interest in another dwelling anywhere in the world,
• that other dwelling has a market value of £40,000 or more, and
• the transaction is not excluded by one of the relieving rules, such as the replacement of an only or main residence.

For married couples and civil partners living together, the rules are particularly strict. Schedule 4ZA generally treats them as one unit for the purpose of deciding whether the higher rates apply. That means if either spouse owns another dwelling, a purchase by the other spouse may still be caught.

The legislation also looks at whether the buyer holds a “major interest” in a dwelling. Freehold ownership will clearly count. Certain leasehold interests can also count. Overseas property interests are not ignored merely because they are outside the UK. The question is whether the foreign interest is equivalent in substance to a major interest in a dwelling and whether the value threshold is met.

Where a person is buying a property to replace their only or main residence, the higher rates may not apply, or may be reclaimed later if the old main residence is sold within the permitted period. But that replacement relief depends on disposing of a previous only or main residence. If the buyers are keeping all existing dwellings and are not replacing a previous main residence, that route will usually not be available.

Trust rules are separate and complex. SDLT treatment depends on the type of trust, who the beneficial owners are, and who is treated as purchaser. Simply placing a property into a trust does not automatically prevent the higher rates from applying.

Analysis

Step one is the straightforward point. If the couple buy the new UK home jointly, and one spouse already owns another dwelling overseas worth at least £40,000, the higher rates will usually apply. That is because spouses living together are not able to sidestep the surcharge by relying on only one spouse’s property position.

Step two is whether a sole purchase by the other spouse helps. Usually, not if the spouses are living together. Even if only one spouse is named on the transfer, the legislation generally attributes the other spouse’s dwelling ownership for higher-rate purposes. So the spouse’s overseas dwelling is likely to remain relevant.

Step three is the more technical issue: does a bare ownership interest subject to another person’s usufruct count as ownership of another dwelling? The answer depends on the legal nature and value of that foreign interest. In many civil law systems, bare ownership is a real proprietary interest. If that interest has a market value of at least £40,000, HMRC may well treat it as a major interest in another dwelling for Schedule 4ZA purposes. The fact that someone else enjoys usufruct does not necessarily mean the bare owner has no relevant dwelling interest. The valuation and exact foreign law characterisation matter.

Step four is the £40,000 threshold. This threshold applies to the market value of the buyer’s interest in the other dwelling, not necessarily the full unrestricted value of the whole property. In a usufruct arrangement, the bare ownership interest may be worth less than the full property value. That does not mean it is ignored; it means the interest itself must be valued properly. If that interest is under £40,000, it may fall outside the higher rates test. If it is £40,000 or more, it is likely to count.

Step five is whether the purchase is a replacement of a main residence. On the facts given, the buyers are planning to acquire a UK home while retaining the foreign properties. If they are not disposing of a previous only or main residence, they are unlikely to qualify for the replacement exception. Simply intending to live in the new property as a main residence is not enough on its own.

Step six is the trust idea. In most cases, using a trust to hold the new home does not produce an easy SDLT saving. If the parents are arranging the mortgage, funding the purchase and living in the property, HMRC and the legislation will look at the real structure and the trust rules in detail. A trust may create further SDLT, tax and practical issues rather than solving the problem.

Step seven is putting the property into the name of a child under 18. That is usually not a realistic workaround. A minor cannot simply be used as a clean substitute owner while the parents borrow, fund and occupy the property without wider legal and tax consequences. Mortgage lenders also create practical barriers. In addition, anti-avoidance and settlement issues may arise depending on the structure.

Step eight is whether restructuring the overseas interest before the UK purchase would help. Possibly, but this is not something to do casually. A transfer of the overseas interest could trigger foreign taxes, UK tax consequences, reporting obligations, legal fees, and succession implications. If the transfer is to a company, there can be entirely separate tax charges and ongoing consequences. Timing and beneficial ownership issues also matter. Any such step needs coordinated advice from a UK SDLT specialist and a lawyer or tax adviser in the country where the property is located.

Finally, if any argument is being considered that the overseas property should not count because it is not fit for habitation, the threshold is now relatively high. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, the condition required for a dwelling to be treated as unsuitable for use as a dwelling is demanding. Ordinary disrepair, inconvenience, or the need for renovation will often not be enough.

Outcome

The practical answer is usually as follows:

• If the couple buy jointly, the 5% SDLT surcharge is very likely to apply if either spouse owns another dwelling interest worth at least £40,000 anywhere in the world.
• If only one spouse buys, the surcharge may still apply because spouses living together are generally treated as one unit for these rules.
• A bare ownership interest in an overseas property can count, depending on its legal nature and market value.
• A trust or using a minor child is not an obvious or reliable way to avoid the surcharge.
• The key factual point is the proper valuation and legal characterisation of the overseas bare ownership interest.

Practical Steps

A buyer in this position should usually do the following before exchange of contracts:

1. Obtain a clear description of the overseas property rights under local law, including whether the interest is bare ownership, usufruct, life interest or another form of title.
2. Get a proper market valuation of the specific interest actually owned, not just the full value of the whole foreign property.
3. Check whether the interest is worth £40,000 or more in sterling at the relevant time.
4. Review whether either spouse has disposed of a previous only or main residence in a way that could bring the replacement exception into play.
5. Take specialist SDLT advice before using any trust, company or family arrangement, especially where a mortgage is involved.
6. Take local legal and tax advice before transferring or restructuring any overseas property interest.
7. Keep documentary evidence of title, valuation and the reasoning used to determine the SDLT treatment.

Conclusion

An overseas property interest can trigger the 5% SDLT surcharge on a UK home purchase, even where the interest is only bare ownership and even where the other property is abroad. For spouses living together, sole ownership by one spouse of the new home often does not avoid the higher rates. The decisive issues are whether there is a major interest in another dwelling, whether that interest is worth at least £40,000, and whether any replacement of main residence exception applies.

Legal References Used

• Finance Act 2003
• Finance Act 2003, Schedule 4ZA
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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