Frequently Asked Questions about:
Stamp Duty Land Tax – surcharge for non-residents
Raising taxes on property has been an easy target for the government for a number of years. Aside from increasing the scope of capital gains taxes on property, particularly on non-residents, the 3% surcharge for second properties was one of a number of changes aimed at specifically increasing the cost of purchasing properties.
Whatever effect it was intended to have, the government decided in 2018 to investigate the idea of adding a further Stamp Duty Land Tax (SDLT) surcharge to the purchase of property by buyers who are not resident in the UK. It was confirmed earlier this year that this surcharge will be put in place with effect from 1 April 2021.
As clients get to grips with how this new surcharge will work, we have compiled a series of frequently asked questions in relation to this change to help non-resident purchasers navigate how it will affect their transactions.
How much is the surcharge?
The surcharge is a flat rate of 2% of the purchase price added to the SDLT bill.
Does it apply to all property?
No, it only applies to the acquisition of dwellings situated in England or Northern Ireland. Non-residential and mixed-use property is outside the scope of the surcharge, as is any property situated in Scotland or Wales where land transaction taxes are the responsibility of the devolved administrations.
Is this instead of the 3% surcharge for second homes?
No. The 2% non-resident surcharge is in addition to whatever the SDLT bill would have been. So, for example, if the 3% surcharge applies and you are within the scope of the non-resident surcharge, you have to pay both.
This means that if you are buying a high-value dwelling and you are subject to the non-resident surcharge and the 3% surcharge (for example, because you are buying a second home) then the top rate of SDLT you will be facing is 17%.
Does it apply if I’m acquiring a property I will use for my main residence?
Yes, if you are non-UK resident at the time it is acquired. You may be eligible for a refund if you subsequently become a UK resident.
Who counts as a non-resident?
An individual is non-resident for these purposes if they have spent less than 183 days in the UK in the 12 months preceding the purchase of the property.
I am resident in the UK for income tax purposes, does that mean I won’t have to pay the surcharge?
Not necessarily. The test of residence for this SDLT surcharge is different to the test of residence for income tax. So, you could be UK resident for income tax purposes, but non-UK resident for SDLT purposes. On the other hand, it is unlikely that you could be non-UK resident for income tax purposes, but UK resident for SDLT purposes.
What if my residence status changes?
If you are non-UK resident when your make your purchase, you have a two-year window in which to accumulate 183 days of presence in the UK in any continuous period of 365 days. The two-year period runs from 364 days before the transaction, until 365 days after the transaction. If you accumulate those 183 days, you will be entitled to a refund of the 2% surcharge.
What happens if there are multiple joint purchasers?
If there are joint purchasers who are all individuals, if any one of them is non-UK resident, then the transaction is subject to the non-resident surcharge, even if all of the others are UK resident.
There is an exception to this for married couples who are living together at the date of completion. If one spouse is non-UK resident and one spouse is UK resident then the surcharge does not apply.
What about company purchasers?
The residence of a company is determined in the same way as for corporation tax, so broadly a UK incorporated company is UK resident and a non-UK incorporated company is non-UK resident.
However, if the non-UK company is managed and controlled in the UK, it will be deemed to be UK resident.
If the UK resident company is controlled by 5 or fewer participators (broadly, shareholders) who are non-UK resident individuals, then the company will be deemed to be non-UK resident.
Are there any exemptions?
There are some very limited exemptions for purchasers that are regulated investors (such as Real Estate Investment Trusts).
What if I exchange contracts before 1 April 2021?
For contracts exchanged before 1 April 2021 and completed after that date are only outside of the scope of this charge if they were exchanged before 11 March 2020.