SDLT for non-residents

SDLT is set to rise by 2% from 1 April 2021 for non-UK residents purchasing residential property in England and Northern Ireland.

The details of these long-awaited proposals were published in November in Finance Bill 2021 and there are a few ‘quirks’.

The surcharge will apply on top of all other rates of SDLT including the 3% additional homes charge, and the flat 15% rate that applies to companies buying dwellings for more than £500k. The additional 2% will apply where the purchaser, or one of them if there are joint purchasers, is non-UK resident. There is however an exception where spouses or civil partners who are living together are purchasing together – the surcharge will not apply unless both are non-UK resident.

For the purposes of this surcharge, there is to be a stand-alone non-residence test. Individuals will generally be non-UK resident if they spend less than 183 days in the UK in a consecutive 365-day period beginning a year prior to and ending a year after the effective date. A refund may be available where the individual becomes UK resident after the tax has been paid.

There are separate rules for companies and trusts. A company will be non-UK resident if it is non-resident for corporation tax purposes, or if it is a close company with non-UK resident individual participators (non-UK residence for such individuals being determined under the rules above). This means that non-UK residents who might be buying through a UK company (because they are buying to let/sell for example) will still be penalised. Where a bare trust purchases a property, the residence of the beneficiary (determined by these rules) will determine whether the surcharge applies. Equally, for ‘life interest’ trusts, the application of the surcharge is determined with reference to the beneficiary’s residence status even if the Trust is liable to pay any SDLT due. If neither of the above apply, each trustee’s residence (whether individuals or corporate) will be determined under these SDLT rules. The surcharge will apply unless all of the trustees are UK resident. There is also a rule preventing the use of a UK resident nominee on the grant of a lease to get around the rules.

The contents of the Finance Bill are due to be confirmed at the Budget. It will be interesting to see whether these provisions remain, or whether the government’s priorities have changed.