SDLT surcharge for non-UK resident buyers

The stamp duty land tax (SDLT) surcharge for overseas buyers of residential property was announced in the 2018 Budget and was the subject of a consultation in 2019. Draft legislation published on 21 July 2020 clarifies the likely scope of the charge. It operates as an extra 2% added to all residential rates of SDLT (including the current 3% ‘additional homes’ surcharge, the flat 15% rate for certain corporate purchases and the rates of lease duty) where a non-UK buyer purchases residential property in England and Northern Ireland. The surcharge will take effect from 1 April 2021.

The surcharge applies to non-resident individuals, unit trusts, partnerships and corporates buying UK residential property, as well as beneficiaries under life-interest and bare trusts and trustees of other types of trust, subject to some limited exceptions as set out further below.

Its direct impact will primarily be on overseas individuals purchasing residential property but overseas corporates that bulk-buy residential property (e.g. via private rented sector schemes) will in most cases no longer benefit from making a claim for multiple dwellings relief which results in the residential rates applying in place of the bulk-buy commercial rates. It appears the Government expects a rush of overseas investment to be made ahead of the imposition of the surcharge, but for overseas buyers subsequently to fall away.

Excluded transactions

The surcharge will not apply to certain transactions, including:

• residential property that is subject to the circa 5% commercial property rates (e.g. where six or more units are purchased in a single transaction and no claim for multiple dwellings relief is made);
• purpose built student accommodation;
• acquisitions of leases with less than 21 years to run; and
• reversionary interests subject to a lease with more than 21 years to run.

Residence of individuals

The residence of an individual for the purposes of the surcharge is not determined by the UK statutory residence test used for other tax purposes. An individual is resident if they have been in the UK for at least 183 days in a 365-day period within which the date of purchase somewhere falls. If the purchase is made jointly with a spouse or civil partner (who are co-habiting), only one of the purchasers needs to be the UK resident for the charge not to apply. There is a specific exemption from the charge for Crown employees and their cohabiting spouses.

If the residence test has not been met at the point of sale, the surcharge must be paid; but where the test is subsequently met, the individual will have two years from the date of purchase to amend their SDLT return to reclaim the surcharge.

Residence of companies

A company is treated as resident if it is resident for corporation tax purposes on the date of purchase but there is an exception for such companies that are (broadly) controlled by any number of non-resident participators (an adapted close company test) – i.e. these companies are treated as non-UK resident.

UK real estate investment trusts (REITs), members of a group UK REIT and open-ended investment companies (OEICs) resident for corporation tax purposes are treated as resident even if they would otherwise qualify as non-resident under the adapted close company test.

Residence of other entities

Where partnerships have a partner, who is an individual or trusts have an individual trustee, that individual is treated as resident only if they were in the UK for at least 183 days in a period of 364 days immediately before the point of purchase. All partners/trustees need to be UK resident for the partnership/trust to be UK resident.

Joint purchasers

Subject to the rules concerning spouses and civil partnerships referred to above, joint purchasers (individual or corporate) must all be UK resident for the charge not to apply.