SDLT surcharge for non-UK resident buyers of residential property
From 1 April 2021, non-resident purchasers of residential property in England and Northern Ireland will pay a 2% surcharge on top of all rates of Stamp Duty Land Tax. This is a further measure in an already overcrowded set of SDLT rules.
The surcharge applies to the purchase of a freehold interest or a leasehold interest with more than 21 years remaining, providing such interest is not subject to a lease with more than 21 years remaining. The purchase of a freehold interest subject to a lease with 25 years remaining would therefore escape the surcharge.
The complicating aspect of this new surcharge is that it introduces a new test for residency which is different to the existing statutory residence test and not based on tax years.
An individual buyer will be UK resident for these purposes (and outside the scope of the surcharge) if he or she is present in the UK on at least 183 days during any continuous period of 365 days which begins 364 days before the effective date of the transaction and ends 365 days after the effective date. It is possible to be non-resident at the time of the purchase but become UK resident in the year following the purchase, so this would involve paying the surcharge and then making a reclaim.
In general, where there are two or more individual buyers, the 2% surcharge will apply when at least one of the buyers is non-resident; however, for joint purchasers who are living together and either married or civil partners, the surcharge won’t apply providing at least one of the couple is UK resident.
The 2% surcharge also applies to non-resident companies. The residency test for companies is determined at the effective date and is based on the existing corporation tax act rules. The most complicated aspect of the new rules is that the surcharge can also apply to a UK company if it is a close company and controlled by non-UK resident participators. The test for UK residency of any individual participators is different to the test for individual buyers set out above and requires presence in the UK on at least 183 days in the shorter window of the period beginning 364 days before the effective date and ending with the effective date. Unlike for individual buyers there is no scope for becoming UK resident after the completion of the purchase. There are exclusions from the surcharge for UK companies controlled by non-UK participators which are Open Ended Investment Companies and REITs.
The surcharge applies to purchases by trustees where there is a non-resident beneficiary who is entitled to occupy the property or entitled to income from the property.
If you have any questions on this new SDLT surcharge please contact Tax Partner, Julian Moran, on 07500 162767