Stamp duty, in one form or another, is one of the oldest taxes in the UK. First introduced in 1694, it’s charged on most land and property transactions. Over the years a range of concessions have been made to help first time buyers, and to buy up the property market in the wake of the coronavirus pandemic. But penalties have been used too, most recently for those buying UK residential property whilst living outside of the UK. Peter Webb, our Head of Tax Advisory, explains the changes.
What is changing?
From 1 April 2021, an extra 2% Stamp Duty (or officially Stamp Duty Land Tax – SDLT) will apply to non-UK residents who purchase UK residential property in England and Northern Ireland. This means that the top rate of SDLT can be as high as 17%. The surcharge does not apply if the property is less than £40,000 or for any leasehold transaction where the lease has less than 21 years to run.
Why has the change been introduced?
The Government’s aim is that the extra charge will help make house prices more affordable for people to get onto the housing ladder. The revenue raised will be used by the Government to tackle rough sleeping.
What will it apply to?
The surcharge will apply to the purchase of freehold and leasehold property, and to SDLT payable on rents on the grant of a new lease. The surcharge does not apply to non-residential property or mixed transactions unless multiple dwellings relief is claimed. It may also apply to off-plan purchases. It’s worth noting the changes do not apply to properties located in Scotland or Wales, which have different forms of Stamp Duty.
Who is a UK non-resident buyer?
To be considered a UK non-resident buyer, you will need to be treated as non-resident for SDLT purposes. This is a different test than the Statutory Residence Test which is used to determine whether you need to pay Income or Capital Gains Tax in the UK.
Although the residence test for SDLT is relatively simple compared to the Statutory Residence Test, you will need to keep in mind that the two types of residences are treated separately for the different types of taxes.
Specialist advisers can help navigate this rather tricky area but broadly the surcharge will apply in the following circumstances:
- If you have spent fewer than 183 days in the UK in the 12 months ending with the date the property was acquired.
- You must be present in the UK at midnight for this to count as a day of presence in the UK.
- Having the right to reside in the UK, including if you hold a British National Overseas passport, will not be relevant when determining whether you’re a non-UK resident buyer.
Is it possible to reclaim the SDLT surcharge?
It’s likely that the surcharge might apply if you’re moving to the UK and buying a property at the same time. Thankfully, you can claim back any additional tax you have paid in certain circumstances. This will be based on how long you spend in the UK, centered on the purchase date.
Therefore, you could consider the surcharge as a temporary cost which applies when moving to the UK shortly after purchasing a property. So, it’s important to be aware of it, factor it into your financial calculations and then follow the guidance to claim a refund. Do bear in mind HMRC might need suitable evidence of your presence in the UK to help process your claim.
Other types of non-UK resident buyers
There are other circumstances in which the new surcharge might apply too. Generally, any company purchase will face the charge, unless it’s incorporated and managed in the UK at the time of the transaction. There are specific rules for close companies too, which covers those owned by five or fewer participants.
Similarly, a partnership will also face the additional charge if any partners are non-UK resident (regardless of their level of interest). Open ended investment companies (OEICs) and real estate investment trusts (REITs) are exceptions here.
Likewise, if a property is purchased jointly by two individuals, the surcharge will apply if either is non-UK resident. The rules here vary for individuals who are married or in a civil partnership. If one partner is UK resident, and the other isn’t, the surcharge won’t apply provided that the couple are ‘living together’.
It’s also important to note that UK resident trustees may be subject to the surcharge if there’s at least one UK non-resident trustee, or if the life tenant is non-UK resident. Careful planning may be needed here to avoid any unintended consequences.
If you are able to claim a refund on the surcharge, an amended SDLT Tax Return will need to be submitted to HMRC within two years of completion.