From 1 April 2021, the introduction of a non-UK Resident Stamp Duty Land Tax (‘SLDT’) Surcharge means that rates of ‘SDLT’ for the purchase of residential property in England and Northern Ireland by those who are not resident in the UK will be 2% higher than those applicable to purchases made by UK residents. The new surcharge is not relevant for such transactions in Wales or Scotland.
What will the surcharge apply to?
This surcharge will apply as an additional 2% tax on the various standard SDLT rates that we are familiar with – from the first time buyer rates, the standard residential rates to the higher rates applicable when additional dwellings are purchased and the flat rate for high value transactions by companies. It also extends to buildings in the process of construction, those being converted to residential use and off-plan purchases.
Purchases for less than £40,000, leases with annual rents less than £1,000 and leases with terms of 7 years or less are excluded.
The purchase of mixed commercial and residential property and the potential application of Multiple Dwelling Relief (MDR) if applicable, combined with the consideration of the new 2% surcharge, should be given careful consideration given the complexities to ascertain how a transaction may be structured for a non UK-resident purchaser.
So who exactly does this apply to?
The surcharge applies to non-resident transactions by individuals, companies, partnerships and trustees where the purchaser is not UK resident and also applies in the case of joint or multiple purchasers (with the exception of married or civil partners who purchase jointly) where at least one of the purchasers is not UK resident. In cases of joint purchasers, it applies to the whole of the purchase price and not just the share attributable to the non-UK resident.
But what does ‘UK resident’ mean?
The UK’s usual Statutory Residence Test (SRT) which applies for UK tax purposes is not relevant here and there are new tests and separate rules for individuals, companies and trustees for the sole purpose of determining if an individual is UK resident for this SDLT surcharge.
The new test for an individual is founded on a basic rule that an individual is a UK resident if they are present in the UK for at least 183 days during a continuous period of 365 days which fall within the ‘relevant period’ and end on the ‘effective date’. Specific residence and SDLT advice will therefore be required to ascertain compliance with the relevant period and effective date. If evidence can be provided at a later date to confirm that the surcharge should not have applied a refund of the additional 2% payment may be sought.
When considering companies, partnerships and trustees particular attention must be paid to the specific rules regarding the control of the company, the residency of the individual partners or trustees and the residency of a trust’s beneficiary. The rules for companies are particularly complex such that where a company is UK resident for corporation tax purposes, it might still be caught by this surcharge if it is under ‘non-resident’ control. In some cases it will be easy to determine if the surcharge applies however in many cases, the new rules have increased the complexity of residential property taxation for foreign purchasers of UK residential property and specialist legal and taxation advice should always be obtained.
Sally Whatley-Brown (SallyWhatley-Brown@Greene-Greene.com, 01284 717509)
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