Stamp Duty surcharge for Non UK residents

Non UK residents to pay Stamp Duty surcharge from 1^st April 2021

With all the press focus on the Stamp Duty holiday that is shortly to come to an end it is a good time to also focus on an another potential increase in Stamp Duty due to take effect on 1^st April 2021. 

On 1 April 2021, a new surcharge for Stamp Duty Land Tax (SDLT) for buyers of residential property in England will apply where the buyers of the residential property are not UK residents.  The surcharge will be 2% of the SDLT payable on the purchase of the property.

The surcharge comes into effect on 1 April 2021, but was part of a raft of announcements made by the Government in 2019.  The background to the measure was that foreign buyers were widely considered to be a major factor in property price inflation, particularly in London.  The policy objective behind the surcharge from the Government is to help improve the affordability of housing for people living in the UK.  The aim is to charge non-UK residents an additional surcharge of SDLT and the Government has pledged to spend the extra money recouped from this surcharge on alleviating homelessness within the UK.

The surcharge will apply to the purchase of residential property in England or Northern Ireland, where the purchaser or one of the purchasers is not a UK resident.  It includes properties or buildings that are in the process of being constructed or adapted for use as a residential home, and to "off plan" purchases from housebuilders.

For joint purchasers if any one purchaser is a non-resident the surcharge will apply.  The SDLT surcharge will apply to the whole purchase price, not just the proportion attributable to the non-resident’s share.

There are some exclusions from the SDLT surcharge for non-residents but they are limited.  Excluded transactions include purchases for less than £40,000, an acquisition of a leasehold property which has less than 21 years left to run on the lease, purpose-built student accommodation or care homes.  The SDLT surcharge will apply to purchases which completed after 1 April 2021.

The key question is how is a "non-UK resident" defined.  Importantly, it is not decided by reference to the normal UK statutory residence test which is used for Income and Capital Gains Tax purposes.  There is a separate definition for non-resident under the SDLT surcharge.

An individual will be treated as a UK resident if they have been in the UK for at least 183 days in any continuous period of 365 days, falling within the two-year window beginning 364 days before the purchase and ending 360 days after it.  If the purchase is made jointly with the spouse or civil partner and the couple is living together, only one of the purchasers needs to be a UK resident for the charge not to apply.  A couple will be "living together" unless they have either formally, or in practice, separated on a permanent basis.

There is a specific exemption from the SDLT surcharge for employees of the Crown – for example a UK government diplomat who has been working abroad.

A company which is subject to UK Corporation Tax will be considered a "UK Resident" and will not be subject to the SDLT surcharge.  However, certain companies which do pay UK Corporation Tax but are controlled by non-resident individuals can be classed as non-resident.  These will therefore be liable to pay the SDLT surcharge and include companies incorporated outside the UK, and which are managed and controlled outside of the UK.  Alternatively, a company which is liable to account for UK Corporation Tax that is a close company (controlled by five or fewer participants) and the close company is controlled by non-UK residents.

The SDLT surcharge here can apply if the beneficiary or one of the beneficiaries of a Trust is a non-UK resident under the test for individuals.  This is the case where the Trust is a Bare Trust.  However, where the Trust is a settlement, it will need to be decided whether the beneficiary is entitled to occupy the property for life, or receive income from it.  If that is the case then there will be no surcharge providing the beneficiary meets the UK residency test for an individual.  If not, then the SDLT surcharge will apply.

If a partnership purchases a property, and one of the partners is non-resident, the purchase will be subject to the SDLT surcharge.

Stamp Duty Land Tax has a number of reliefs.  For example where someone purchases six or more separate residential properties in one transaction relief would apply.  The SDLT surcharge for non-residents will not apply here either.  However Multiple Dwellings Relief (MDR) will be less attractive as the SDLT surcharge will increase the relevant residential rates of SDLT, which are applied to the overall purchase price.

For more information on the purchase of residential property, and a discussion about the non-UK resident SDLT surcharge, please contact us.