As we approach the Easter bank holidays, it is worth remembering that for some homebuyers, 1 April will bring an unpleasant Easter surprise in the form of additional Stamp Duty Land Tax (SDLT) liabilities.
From 1 April 2021, additional rates of SDLT will apply where the purchasers of residential property in England and Northern Ireland are not resident in the UK. It is not related to the 3% surcharge for second homes, and it does not matter whether the non-resident purchaser intends to live in the home or not. It does not apply on non-residential property or mixed property transactions (unless multiple dwellings relief is claimed).
The additional charge levied is 2% higher than the SDLT rates that apply to purchases made by UK residents. The charge will be levied on purchases of both freehold and leasehold property, as well as increasing the SDLT payable on grant of a new lease.
The surcharge also applies to certain UK resident companies that are controlled by non-UK residents, where modified versions of the close company rules apply, as well as to non-UK resident companies.
As a result a non-resident purchasing relevant residential property as a second home could end up paying an additional 5% on top of the standard SDLT rates. By way of example, a UK resident individual purchasing a main residence in October 2021 for £600,000 would pay £20,000 in SDLT. If this was a second home, this amount would increase to £38,000, and if the purchaser was additionally considered non-UK resident, the SDLT charge would be two and a half times the standard amount at £50,000.
However, it is crucial to note that the definition of non-UK resident for the purposes of this charge is not related to other definitions of non-residence. Indeed HMRC guidance on gov.uk specifically states that “Nationality, citizenship or residence status under the UK Statutory Residence Test (SRT) are not relevant for this purpose.” Instead, an individual is considered a non-UK resident buyer if they are not present in the UK for at least 183 days during the 12 months before their purchase.
Notwithstanding the fact that it is entirely possible to be considered UK resident for SRT purposes with far fewer days spent in the UK, the test also considers the 365 days immediately preceding the purchase and is not related in any way to tax years. This means that the timing of England and NI residential property purchases could be crucial if globally mobile but normally UK resident individuals spend large periods of time outside the UK at different times of the year. Purchasing a new home after spending six months summering in the South of France may end up an expensive choice.
However, there may be a saving grace, as individuals purchasing relevant residential property may be able to claim a refund of the 2% surcharge if they meet residency requirements within a 12-month period after the effective date of transaction. This works by allowing a repayment if individuals are present in the UK for 183 days during any 365 days period in the two years falling before and after the transaction.
There are additional rules in relation to residential properties purchased by companies and LLPs, and where one party to a marriage is considered UK resident under the SDLT test, then both are treated as UK resident. Conversely, where partners in a partnership are purchasing England and NI residential property, or non-married joint purchases, where one party is considered non-UK resident under the SDLT test, then all partners/parties will also be treated as non-UK resident for SDLT purposes.
Finally, where any trustee of a trust is a non-UK resident under SDLT rules, then the surcharge will apply to the trust, provided it is not a bare trust, nor one where a beneficiary has an interest in possession in the purchased property, in which case the SDLT residence status will be that of the person beneficially entitled. This means trusts purchasing residential property in England or NI will need to undertake additional checks to ensure they are aware of the SDLT residence status of all trustees.
While HMRC are confident that most people will ‘know’ whether they have spent 183 out of the previous 365 days in the UK, it is going to be a grey area for many, and tax advisers and conveyancers alike will need to be alert to a potential charge for their clients.
