Stamp Duty Land Tax – surcharge for non-UK buyers

From April 2021, a new surcharge (2%) for stamp duty land tax (SDLT) will be applied to those individuals who are not UK residents to purchase of residential property in England and Northern Ireland.

What type of purchases does the surcharge apply to?

The surcharge will apply to a purchase of residential property (freehold or leasehold and including if purchased together with non-residential property) situated in England or Northern Ireland, where the purchaser or one of the purchasers is not UK resident. This means that where there are two or more buyers of a dwelling who are (or include) spouses or civil partners, of whom one is UK resident and the other non-resident. The the non-resident spouse will be treated as a UK resident for the purposes of the 2% surcharge if they are both entitled to an interest in the property; and if at the effective date (i.e. the date of completion) they are married and living together.

The surcharge of 2% will apply to the whole purchase price, not merely the proportion attributable to the non-resident’s share.

How is the surcharge calculated?

The surcharge operates as an extra 2 per cent of tax added to all residential rates of SDLT. This includes:

  • the ordinary residential rates starting at 0 per cent.
  • the higher residential rates for additional properties starting at 3 per cent; and
  • the flat 15 per cent rate applicable to certain corporate purchases of homes with a value of more than £500,000.

How is residency determined?

Individuals

An individual will be treated as UK resident if they have been in the UK for at least 183 days in any continuous period of 365 days before the date of completion. The day count will include any day when the individual is in the UK at midnight.

If, at the point of purchase, an individual is non-resident (i.e. the 183-day test has not yet been met) the surcharge must be paid. If the individual then subsequently satisfies the test to become UK resident, they can amend their tax return to reclaim the surcharge. They must make the claim within two years of the of the date of completion. 

Companies

In general, a company which is UK resident will not be subject to the surcharge. However, certain companies will be treated as non-UK resident and subject to 2% surcharge if, on the date of completion:

  • The company is not UK resident for the purposes of corporation tax; or
  • The company is UK resident for the purposes of corporation tax, but it is a close company and meets the non‑UK control test in relation to the transaction.

Trusts

A bare trust is normally transparent for SDLT purposes so the surcharge will apply if the beneficiary of the bare trust is non-UK resident. However, the treatment for other settlements (broadly trusts other than bare trusts) will depend on whether the beneficiary is either entitled to live in the property for life or to receive rental income arising from the property. If so, and that beneficiary is non-UK resident, the surcharge will apply. If not, the surcharge will apply if the trustee is non-UK resident.

If you would like a clearer picture on how this may affect you as an overseas buyer, please do not hesitate to get in touch. 

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