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. 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. It applies with effect from 1 April 2021.
The non-resident 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. PRS 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.
The Finance Bill has clarified that the non-resident surcharge will apply to purchases of mixed residential and non-residential properties (unlike the current 3% 'second homes' surcharge).
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; and
- acquisitions of leases with less than seven years to run (rather than 21 as previously drafted).
Interests subject to a lease with more than 21 years to run were previously excluded but are now within the surcharge.
Residency of individuals
The residency of an individual for the purposes of the surcharge is not determined by the statutory residency test used for other tax purposes. An individual is resident for the SDLT surcharge test if they have been in the UK for at least 183 days in a 365-day period within which the date of purchase 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 UK resident to escape the charge. There is a specific exemption from the charge for Crown employees and their cohabiting spouses but see below for other joint purchasers.
If the residency 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.
Residency of companies
A company is 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 REITs, members of a UK REIT group resident for corporation tax purposes are treated as resident even if they would otherwise qualify as non-resident under the adapted close company test. Originally OEICs were also excluded from the surcharge, now the exclusion is restricted to PAIFs but includes 51% subsidiaries of PAIFs.
Residency of other entitites
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 365 days immediately before the point of purchase. All partners/trustees need to be UK resident for the partnership/trust to be UK resident but the Finance Bill now provides that the non-residency of a 1% or less general partner is not to be taken into account for the purposes of establishing the residency of a company owned by a partnership.
UK co-ownership authorised contractual schemes should always be treated as UK resident, irrespective of the residency of the investors.
Subject to the rules concerning spouses and civil partnerships referred to above, joint purchasers (individual or corporate) must all be UK resident for the transaction to escape the charge.
KPMG Crown Dependencies